“Never again,” President Donald Trump pledged in his inaugural address last January, “will the immense power of the state be weaponized to persecute political opponents.” That has proven to be the biggest broken promise of his second term. The latest example is the criminal investigation of Federal Reserve Chair Jerome H. Powell.
The pretext is Powell’s testimony about the Fed’s building renovations, but it’s apparent that the real cause of the investigation is Trump’s clashes with Powell over interest rates. Such lawfare has a way of backfiring, and this threat could fortify the central bank’s independence rather than weaken it.
Congress tried to insulate the Fed from direct presidential control. The idea, supported by empirical research across countries and over decades, is that independent monetary policy keeps inflation lower and steadier. Elected presidents have an ineluctable desire to see the money supply adjusted based on political calendars.
Trump has chafed at that restriction and — perhaps because of his background as a builder — is especially eager for low rates, even though inflation is hurting him politically. Last April, Trump mused about firing Powell, but he walked it back after markets plunged.
Since then, the president has tried other ways of influencing the Fed. In August, he announced he was firing Lisa Cook, a member of the Board of Governors appointed by President Joe Biden, after Trump’s attack-dog housing regulator, Bill Pulte, dug up what he claimed were irregularities on a mortgage application. She hasn’t been charged with a crime and denies wrongdoing. The Supreme Court temporarily blocked Cook’s removal and will hear oral arguments in the case challenging her termination next week.
In September, Trump’s nominee for the Board of Governors, Stephen Miran, said he would not resign from his White House role while serving, further eroding the central bank’s independence. Now comes the move against Powell.
The Fed chair announced Sunday, in an unusual video, that he received subpoenas “threatening a criminal indictment related to my testimony before the Senate Banking Committee last June.” He had testified about the Fed’s construction at its Washington headquarters, which is costing more than projected. Unfortunately, overruns are the norm in government projects — a worthy issue for congressional oversight — but the public evidence that Powell deliberately made any false statement is nonexistent.
Former economic policy officials from both parties released a statement that the Justice Department’s threat to Powell is “how monetary policy is made in emerging markets with weak institutions.” That’s true, but the U.S. is a long way from that point. It’s possible Justice Department cowboys managed to get a subpoena to harass Powell but won’t be able to convince their superiors to actually indict him.
Even if the Justice Department sought an indictment, it’s not clear a grand jury would oblige. Such juries have been causing problems for the Trump administration’s politically motivated attempt to prosecute New York Attorney General Letitia James (D) in Northern Virginia. The jury pool in D.C., where Powell is apparently under investigation, is even less friendly to Trump. Indicting Powell would be a major escalation, but even then, a conviction on flimsy charges seems very unlikely. Powell’s term as chair expires in May, so he might be out of office by the time any case got going.
Meanwhile, Sen. Thom Tillis (R-North Carolina) denounced the Justice Department’s threat to Powell and said he “will oppose the confirmation of any nominee for the Fed — including the upcoming Fed Chair vacancy — until this legal matter is fully resolved.” That’s crucial because Tillis holds the hinge vote on the 24-member Senate Banking Committee, which must advance Trump’s Fed nominees. Trump says he’s already decided on Powell’s replacement, but the committee will deadlock 12-12 if Tillis sides with Democrats, and no one would be able to get through this year.
The threat to Powell might also cause other Republicans on the committee to more carefully vet potential Powell successors for a willingness to break with Trump when the evidence warrants it. Sen. Dave McCormick (Pennsylvania), who formerly ran a hedge fund, is one to watch. Sen. Lisa Murkowski (R-Alaska) is not on the Banking Committee but endorsed Tillis’s posture after speaking with Powell on Monday. She said Congress should investigate the Justice Department’s “attempt at coercion.”
It will be up to the Senate and the Supreme Court to decide whether the Fed becomes a Cabinet-like agency, under the control of the president, or if it retains a measure of independence. The Trump administration is clarifying the choice for both institutions just ahead of their moments of decision. Trying to use criminal law to punish policy disagreements leaves an especially bitter taste.
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