Trump’s legal attack on Jerome Powell underscores his aim for full control over Fed
The subpoenas apply to the cost of renovating Fed buildings, including the marble-clad headquarters in Washington, D.C., but they are more fundamentally about the fate of the Fed’s independence, how power is distributed within the federal government and how that will affect the U.S. economy.
A pair of Republican senators had already expressed dissatisfaction with the subpoenas and the possibility of the Fed losing its political independence. Former Fed chairmen and leading economists drafted a letter Monday to outline the risks to the broader economy from the Trump administration’s actions, which could ultimately shape ordinary people’s ability to find jobs, get mortgages and auto loans.
Over the past year, Trump has tried to pressure Powell to lower the Fed’s benchmark interest rates; This reflects a fundamental break in whether inflation still poses any risk to the US economy.
While Powell argues that inflation is still high after Trump’s tariffs and that he is being cautious, Trump claims that inflation is no longer a concern and rates should be reduced dramatically.
“I have carried out my duties without political fear or favor, focusing solely on our missions of price stability and maximum employment,” Powell said in a video announcing the subpoenas Sunday night. “Public service sometimes requires standing firm in the face of threats.”
Powell’s term as chairman ends in May, but the latest attack from the White House likely reflects concern that Powell may choose to remain on the Fed board until his term ends in January 2028. If it takes this step, the Trump administration will miss out on the opportunity to fill another seat on the board. When asked by reporters Monday whether Powell planned to remain as Fed governor, Kevin Hassett, director of the White House National Economic Council and a leading candidate to become Fed chairman, said he was unaware of Powell’s plans.
“I didn’t talk to Jay about it,” Hassett said.
Stock markets fell on Monday in response to Powell’s announcement Sunday night that the Justice Department had subpoenaed the Fed regarding testimony it gave in June about the central bank’s $2.5 billion building renovation.
Putting aside the cautious approach he has taken since Trump began attacking him last year for not cutting interest rates sharply enough, Powell said the subpoenas were an “excuse” to force the Fed to cut key short-term interest rates.
Sen. Kevin Cramer, a Republican from North Dakota and a frequent critic of Powell, said Monday that he did not think the Fed chair was “guilty” and said he hoped “this criminal investigation can be brought to a swift conclusion,” according to CNBC.
A bipartisan group of former Fed chairmen and top economists said Monday that the White House’s legal actions are “an unprecedented attempt to use prosecutorial attacks to undermine the independence of the central bank.”
“This is the way monetary policy is implemented in emerging markets with weak institutions, with extremely negative consequences for inflation and the functioning of economies more broadly,” the statement said. “This has no place in the United States, whose greatest strength is the rule of law that underpins our economic success.”
The statement was signed by former Fed chairs Ben Bernanke, Janet Yellen and Alan Greenspan, as well as former Treasury Secretaries Henry Paulson and Robert Rubin.
Still, the action had been brewing for some time, and Trump relentlessly criticized and belittled Powell, trying to blame him for some of the discontent with the economy that followed the president’s own tariff announcements.
Trump previewed the shocking news about the subpoenas at a Dec. 29 press conference. The president said his administration would “probably” sue Powell for “gross incompetence” on renovation costs, which he said were “the highest construction price per square foot in the history of the world.”
“He’s a very incompetent man,” Trump said. “But we’ll probably file a lawsuit against him.”
