The threat to the Fed’s independence isn’t over

President Donald Trump has repeatedly attacked the independence of the Federal Reserve. The Justice Department’s launch of an investigation into Federal Reserve Chairman Jerome Powell on Friday does not completely eliminate the threat, but it will pave the way for the confirmation of Trump’s presidential candidate, Kevin Warsh.

“I think we would be foolish to conclude from this that the Fed is out of the woods,” said Lev Menand, a professor at Columbia Law School.

Warsh has long vowed to keep the Fed independent, including at his nomination hearing on Tuesday. But it remains to be seen how he will hold up against a president who says lowering interest rates is a litmus test for his candidate. Trump isn’t shy about telling normally independent parts of the federal government what to do. The Fed is one of the few powers that remain largely outside its control.

The Fed will drop its investigation into cost overruns on renovation projects and Powell’s testimony about them, U.S. Attorney General Jeanine Pirro said Friday. Sen. Thom Tillis, R-N.C., refused to allow Warsh’s nomination to come to a full vote in the Senate while the investigation continues because he sees it as a threat to the Fed’s ability to decide interest rates regardless of political considerations.

Tillis did not say whether he would give up his resistance after Pirro backed down. Pirro said he wanted to see the results of the Fed inspector general’s investigation. “I will not hesitate to reopen the criminal investigation if the facts warrant it,” he said. expression.

Former Fed general counsel Scott Alvarez said Pirro’s decision to potentially reopen the investigation could give the Fed pause. Pirro’s office told the judge in March that there was no specific evidence of wrongdoing to support issuing the subpoena. The Fed will probably want to know what facts might cause Pirro to reopen the investigation.

“I would speculate that the ambiguity in Pirro’s statement may cause Jay to worry about harassment from the Justice Department after he leaves the Fed,” Alvarez said. He said the Fed is probably trying to clarify that.

The Fed declined to comment. Warsh did not immediately respond to a request for comment.

“The White House is as confident as ever that the Senate will quickly confirm Kevin Warsh as the next Federal Reserve Chairman, who will finally restore competence and confidence in the Fed’s decision-making process,” White House spokesman Kush Desai said in a statement. expression.

Trump had nominated Powell for the seat he now holds in 2017, but the president quickly became enraged at Powell because he didn’t like the way he handled interest rates. During his first term in the White House, Trump considered firing Powell but took no action.

Trump went even further in his second administration. He scolded Powell for not cutting interest rates deeply; Trump said this makes it more expensive to finance US debt.

The Fed is charged by law with setting rates to best allow for full employment and low inflation. There was an increase in inflation in countries where central banks lost their independence, such as Türkiye.

Pirro said he acted independently in deciding to investigate Powell, but Trump wholeheartedly supported the investigation. He said he believed there was “crime” on the Fed’s part in the renovation project.

Trump announced in August that he would remove Governor Lisa Cook from the Fed board over her alleged involvement in mortgage fraud. He fought those allegations, and the courts allowed him to remain seated while the case continued in the Supreme Court. Powell participated in court arguments in Cook’s case in January. A decision could come as soon as Wednesday.

Even if the court allows Cook to remain in office, the president could later try to remove Powell. Trump recently stated that he was considering doing so even if Warsh was confirmed as president. Powell can remain in his separate position as governor on the Fed’s seven-member board until January 2028.

“I’m going to have to fire him, okay? If he doesn’t leave on time,” Trump said in an April 15 interview on Fox Business.

“This was a concerted effort to ensure the administration had control over the Fed’s policymaking process,” Menand said. “This has been going on for a year and management has turned to different tactics many times.”

It seems unlikely that Trump will abandon his interest in the Fed under a new chair. The president told CNBC on the morning of Warsh’s Senate confirmation that Trump would be disappointed if Warsh didn’t quickly lower interest rates.

Warsh said at the hearing that regardless of what Trump says, it will be up to him and the Fed to decide where interest rates are set. “I do not believe the independence of monetary policy is threatened when elected officials express their views on interest rates,” Warsh said. “The independence of the Fed depends on the Fed.”

Trump can make him prove it.