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Federal Reserve Chair Jerome Powell sounded the klaxon Sunday evening about the Justice Department’s effort to intimidate the central bank.
“On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June,” he said in a video posted to the agency’s website.
Powell insisted that the threat had nothing to do with cost overruns on the renovation of the Fed buildings, but was rather an effort to destroy the bank’s independence: “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
Financial markets wobbled, with the dollar dropping and gold rising in tandem. The White House rushed to blame Jeanine Pirro, the former Fox News conspiracy theorist and current US attorney for DC, insisting that she’d issued the subpoenas without telling anyone at Main Justice. Treasury Secretary Scott Bessent’s minions assured Axios that "the secretary isn't happy, and he let the president know." Even Republicans in Congress interrupted their furious seal-clapping for the glorious regime to momentarily furrow their eyebrows.
And it worked. Markets stabilized, betting that even this White House wouldn’t be stupid enough to jeopardize the independence of the Fed. TACO FTW … again!
Wannabe despot
In 2018, Trump decreed that Janet Yellen, at five feet tall, was too short to serve a customary second term as Chair of the Federal Reserve Board of Governors. Instead he elevated Jerome Powell, a Republican originally nominated to the Board by Barack Obama in 2012. Powell stands at six feet, but that did not impair his ability to do math, and he, too, continued the Fed’s gradual ratcheting up of interest rates as the US economy hummed along.
The central bank plays a crucial role in regulating the economy by setting the federal funds rate, which is the interest rate banks charge each other on loans. Virtually all lending is pegged to it, particularly home mortgages, and politicians always want lower rates — voters who feel rich are likely to be better disposed toward the party in power. But too much cash sloshing around causes inflation, and the Federal Reserve’s job is to “take the punchbowl away,” raising interest rates gradually in good times to hold down inflation and ensure there’s room to course correct if the economy runs into trouble.
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All this would be familiar to any tenth grade social studies student. And yet Trump seemed doggedly ignorant, whining that it was no fair that Obama got almost seven years of zero interest (really 0.25 percent). Never mind that Obama inherited the Great Recession thanks to the deregulatory excesses of the second Bush administration and the housing bubble.
Trump grumbled that Powell should be lowering interest rates, not raising them. But the “adults in the room” told him to put a sock in it because the stability of the US economy rests on the markets’ faith that the central bank is independent and Uncle Sam always pays his debts. (Trump threatened that second one too, suggesting that maybe the US would default on its bonds.)