The latest battlefront in the Justice Department’s campaign to exact retribution on foes of President Donald Trump looks increasingly likely to have the opposite effect: Its criminal subpoena of Jerome H. Powell could actually make it harder for Trump to get rid of the Federal Reserve chairman he himself appointed and has come to despise.
What the administration finds itself up against is not only a savvy and well-regarded figure in Washington and the financial community but also a long-standing institutional reverence for the independence of the Fed. There is widespread agreement on the need to keep the institution insulated from shortsighted political pressure that could undermine the strength of the U.S. economy and global confidence in the dollar.
Though the subpoena relates to testimony that Powell gave Congress regarding cost overruns for the renovation of Fed headquarters near the National Mall, few in Washington or finance doubt that what is driving the investigatory interest is Powell’s refusal to accede to Trump’s demand for lower interest rates.
Trump has denied he had anything to do with the probe, but he boasted Tuesday in a speechto the Detroit Economic Club: “That jerk will be gone soon.” Officials say Jeanine Pirro, the U.S. attorney for D.C., made the decision to issue the subpoena.
However, unlike earlier instances of what is often referred to as “lawfare” against Trump’s adversaries, this one has generated substantial pushback from key Republicans in the Senate, which would have to confirm any choice by the president of a replacement for Powell. His term as chairman expires in May, although he may remain on the board of governors until early 2028.
The Justice Department’s move may have not only hampered Trump’s effort to replace Powell as chairman but also made it more likely he will stick around on the board of governors for another couple of years. Additionally, it may affect the legal battle in a separate effort by Trump to fire another governor, Lisa Cook, over allegations that she has committed mortgage fraud — a charge she denies.
Under the act that created the Federal Reserve in 1913, Fed governors are named to staggered 14-year terms, which is meant to prevent any individual president from packing the seven-member board with his own preferred members. They can be removed by the president only “for cause,” a term the law does not define.
On the current board, three of the seven are seen as generally aligned with the president in calling for lower rates. Should Trump succeed in dislodging either Powell or Cook, he would probably have a board majority more to his liking.
Powell himself announced that a criminal investigation had been opened. In a startling video posted on the Fed’s website last Sunday, he said: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.”
Reaction came swiftly. “If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question,” Sen. Thom Tillis (R-North Carolina) posted on the X social media platform.
Tillis is a key Republican vote on the Senate Banking Committee, a narrowly divided panel whose approval would be required to send a new nominee to the Senate floor. He added that he will be a no vote on any Fed candidate “until this legal matter is fully resolved.”
Sen. Lisa Murkowski (R-Alaska) echoed Tillis’s criticism on X, and wrote: “If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns — which are not unusual — then Congress needs to investigate the Department of Justice. The stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.”
Senate Majority Leader John Thune (R-South Dakota) also signaled uneasiness: “If the Justice Department is pursuing something, I hope they have a smoking gun or something, because I don’t think you trifle with the Federal Reserve, with the central bank. It is critical to the financial markets in this country. It’s critical to our economy.”
Central bank heads from around the world have also rallied behind Powell, with nine of them — including European Central Bank President Christine Lagarde and Bank of England governor Andrew Bailey — signing a letter stating they “stand in full solidarity” with him.
The chairman, they wrote, “has served with integrity, focused on his mandate and an unwavering commitment to the public interest.”
Powell also has received public support from every living former Fed chair and treasury secretary of both parties. JPMorgan Chase CEO Jamie Dimon, the most influential executive on Wall Street, told reporters “anything that chips away” at the Fed’s independence “is not a good idea.”
There have been strains between the White House and the Fed in the past. President George H.W. Bush blamed then-chairman Alan Greenspan’s reluctance to cut interest rates during the 1990-1991 recession for his own reelection defeat in 1992. But presidents of both parties have generally avoided exerting direct pressure on the board.
That is, until Trump, who nominated Powell to replace Janet L. Yellen as chair in the first year of his first term. In his statement at the time, Trump praised Powell, who had been a member of the board of governors since 2012, for “steady leadership, sound judgment, and policy expertise.” (President Joe Biden reappointed him for a second term in 2021.)
The relationship between Trump and Powell quickly soured. At one point, after the Fed raised its benchmark interest rate for the fifth quarter in a row, Trump reportedly complained to aides that the chairman would “turn me into Hoover,” whose presidency had ushered in the Great Depression. He asked whether he had the power to fire the man whose appointment he considered the worst mistake of his time in office.
Powell, by the accounts of those around him, shrugged off Trump’s increasingly frequent early public insults. He also benefited from the fact that then-Treasury Secretary Steven Mnuchin supported and defended him internally.
But the chairman recognized that Trump’s rage against him was building and invested enormous energy into developing deep bonds with both parties on Capitol Hill as a bulwark against a coming storm. His strategy was to be up there so much, Powell joked, that he would wear out the carpets.
In his second term, Trump returned to the White House more determined than financial watchers expected to pursue policies on tariffs and immigration that many consider detrimental to economic growth — intensifying his drive for lower interest rates, and setting him on an even more direct collision course with Powell. By making borrowing cheaper, interest rate cuts boost economic activity, but, if not timed judiciously, are an accelerant to inflation.
Thus far, tellingly, financial markets have seemed fairly blasé about the tempest in Washington — apparently because they believe the administration is going to have to drop its investigation of Powell. Trump loves to attach insulting nicknames to his foes, and after several rounds of whiplash last year over the president’s tariff policies, Wall Street embraced one for him: TACO.
It stands for “Trump Always Chickens Out.”
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