Defiant independence from the Federal Reserve catches Trump off guard

WASHINGTON— White House officials were stunned Sunday night when a post featuring Fed Chairman Jerome Powell appeared on the Fed’s official social media channel. give a simple and clear message.

Standing in front of the American flag, Powell told the camera that President Trump wasn’t using the Justice Department as a weapon just to intimidate him. He added that it wouldn’t work this time.

The lack of warning to officials in the West Wing, The Times confirmed, was another effort at independence by the Fed chief, who has become an outlier in Trump’s Washington for his fierce resistance to presidential pressure.

Powell was responding to grand jury subpoenas served to the Fed on Friday regarding congressional testimony regarding construction work on the Reserve over the summer.

“The threat of criminal charges is a result of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the president’s preferences,” Powell said.

“This is about whether the Fed can continue to set interest rates based on evidence and economic conditions,” he added, “or whether monetary policy will instead be driven by political pressure or intimidation.”

For months, Trump and his aides have harshly criticized Powell for his decision-making on interest rates, which the president believes should be lowered more quickly. Trump has threatened to fire Powell on several occasions; It was a move that legal experts and Powell himself said would be illegal before withdrawing.

The Trump administration is currently arguing before the Supreme Court that the president should have the power to remove the heads of independent agencies at will, despite the high court’s previous decisions highlighting the central bank’s unique independence.

The Justice Department’s decision to subpoena the Fed over construction, a $2.5 billion project to overhaul two Fed buildings that have operated unrenovated since the 1930s, comes at a critical juncture for the U.S. economy, which has given conflicting signals about its health.

Even though the unemployment rate fell by a tenth of a point to 4.4% for the first time since June, employers added just 50,000 jobs last month; This is a lower figure than in November. Figures show that despite inflation slowing and growth accelerating, businesses are not hiring much.

The government reported last month that inflation fell In November, the annual rate was 2.7%. It decreased from 3% in September; Economic growth unexpectedly increased to 4.3% annually in the third quarter.

But the long government shutdown disrupted data collection and cast doubt on the figures. At the same time, there is uncertainty about the legality of $150 billion or more in tariffs imposed on China and dozens of other countries through the International Emergency Economic Powers Act, which has been challenged by the Supreme Court and is under review.

As inflation cooled, the Fed under Powell gradually lowered the federal funds rate, which is the target interest rate at which banks lend to each other and the primary tool the bank uses to influence inflation and growth. The Fed kept the interest rate steady in the 4.25% to 4.5% range through August, then a series of downward cuts left the rate at 3.5% to 3.75%.

However, this was not enough for Trump, who called for a faster reduction in interest rates. almost 1% hit bottom. The last time the central bank lowered interest rates this much was in March 2020, during the dark days at the beginning of the pandemic. With inflation on the rise and stubborn despite the bank’s efforts to rein it in, it began raising interest rates in 2022.

Mark Zandi, chief economist at Moody’s Analytics, said there is room to continue lowering the federal funds rate to the 3% it should be in a well-functioning economy that “neither promotes nor constrains growth.”

But forcing the Fed to lower rates and reduce or destroy its independence is another matter.

“There’s nothing positive about it. It’s all negative; different shades of gray and black depending on how things play out,” he said. “It results in higher inflation, ultimately a much smaller economy, and potentially a financial crisis.”

Zandi said much will depend on the Supreme Court’s decision on whether Trump can fire Federal Reserve Chair Lisa Cook; He attempted to do so last year, citing allegations of mortgage fraud that he has denied.

While Powell’s term as chairman ends in May, his tenure as a manager influencing interest rate decisions extends through January 2028. A criminal complaint related to the construction project could give Trump the legal justification he needs to oust him completely.

“When he resigns in May, will he stay on the board or will he leave? That will make a difference,” Zandi said.

He said a key issue will be how much independence the Fed maintains, given the central bank’s role in making the U.S. a safe haven for international bond investors who play a key role in financing the federal deficit.

Investors trust the bank to keep inflation in check, otherwise they will demand that the government pay more for its long-term bonds; but the subpoenas have so far had little impact on bond prices Monday.

“There are scenarios where the bond market says, ‘Oh my God, we’re going to see much higher inflation, there’s going to be a bond sell-off and an increase in long-term interest rates,'” he said. “This is a crisis.”

Zandi said that even if the worst-case scenarios do not materialize, it will take time for the Federal Reserve to regain its reputation as an independent bank unaffected by politics.

“I’m not sure investors will forget this,” he said. “Most importantly, it depends on who Trump nominates as the next chairman of the Fed and how that person goes about their job.”

Lawmakers from both parties questioned the motivation behind the investigation.

North Carolina Sen. Thom Tillis, the Republican member of the Senate Banking, Housing and Urban Affairs Committee, said he plans to oppose confirming any Fed nominee until the legal issue is “fully resolved.”

“If there was any doubt left about whether advisers within the Trump administration were actively pushing to end the Fed’s independence, there should be no doubt now.” Tillis wrote in his social media post:.

Sen. Elizabeth Warren (D-Mass.), the committee’s top Democrat, accused Trump of trying to “deploy another sock puppet to complete the corrupt takeover of America’s central bank.”

“Trump abuses Justice Department officials like wannabe dictators so the Fed, along with his billionaire friends, serve his interests.” Warren said in a statement.

Rep. French Hill (R-Ark.), chairman of the House Financial Services Committee, also expressed skepticism about the investigation, calling it an “unnecessary distraction.”

“The Federal Reserve is run by powerful, capable individuals appointed by President Trump, and this action could undermine the ability of both this and future Administrations to make sound monetary public decisions,” Hill wrote in a statement.

While Hill expressed concern about the investigation, he added that he personally knew Powell as “a person of the highest integrity.”

Meanwhile, House Speaker Mike Johnson (R-La.) rejected the idea that the Justice Department was being weaponized against Powell. When asked by a reporter if he thought so, he said: “Of course not.”

Wilner and Ceballos reported from Washington, while Darmiento reported from Los Angeles.