✪ Jerome Powell & The FED Declare War On The Trump Administration

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n Sunday night, the FED chairman took the unprecedented action of releasing a video accusing the Trump Administration of using the Justice Department to put pressure on the central bank. He said on Friday the FED received subpoenas for a grand jury and was threatened with criminal charges concerning the renovations of the Federal Reserve headquarters in Washington, DC; and, his related testimony to a Senate panel last year. However, Powell claimed these inquiries were merely “pretexts.” The real objective was the subversion of Federal Reserve‘s autonomy & independence.

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This is a serious and explosive charge. Powell is accusing the Trump Administration of not only attempting to undermine the independence of the FED, but also of misusing the Justice Department to accomplish this aim. And it was delivered in a highly provocative & unconventional way: in a two-minute video statement released prior to the opening of the Asian markets. It would difficult to design something better aimed to disrupt financial markets, although we cannot say if this was Powell’s real intent. At the very least, Powell chose a time and format to ensure his message hit global markets immediately; leaving the White House no recourse to contain any negative consequences.

If Powell’s intent was to trigger a sell-off in the markets, he failed. Futures suggested the Dow Jones Industrial Average and the S&P 500 could drop by just half a percentage point. The Nasdaq Composite only slightly more. Hardly a harbinger of a forthcoming crash. By midday Monday, even those small down moves had been completely erased as the major indexes flipped green. Apparently, investors were un-phased by the prospect of a direct threat to the Federal Reserve’s independence. in fact, the S&P ended the Monday session closing up to a fresh all-time high.

✪ The Rush To Judgement Against Trump

The pundits along with the Legacy media immediately took up for the veracity of Powell’s accusations by convicting Trump of attempting to seize control of monetary policy. Verdict first, facts later; the typically predictable response to any charge levied against President Trump. However, the markets may have just decided Powell’s allegations did not make very much sense. Even if Trump is tempted to utilize lawfare to force Powell out of office, what would be the point? Powell’s chairmanship is already due to expire in five months; and he has only three more Federal Open Market Committee (FOMC) meetings as chair. What could Trump possibly have to gain by hounding the guy out of an office when he’s already marching toward the exit?

It’s true Powell could stay on as governor until 2028; but harassing him with a Department of Justice investigation seems more likely to encourage Powell to stick around than to leave. Apparently, Powell now views this as a personal attack on his integrity and an assault on the independence of the FED. If he wasn’t already making plans to remain on the FED board before, he probably is now.

A personal vendetta against Powell by the Trump Justice Department would also likely risk alienating the other members of the FOMC; many of whom personally like Powell and have served under him for years.  Even if the investigation were to somehow force Powell from the FED; perhaps because any indictment would provide grounds for the President to remove him, the next chair would be facing a monetary policy committee which would likely feel extremely duty-bound to demonstrate their independence through refusal to cooperate with the administration’s economic policies.

Then there is the question of the Senate because Trump needs Senate approval to confirm his nominee to succeed Powell. There’s no provision in the Federal Reserve Act for the President to appoint an acting chairman; so if Trump’s nominee is not confirmed, the position could remain vacant. Under the Federal Reserve Act, in the case of an “absence” of a chair, the leadership of the Federal Reserve then falls to the vice chair. A position currently held by Phillip Jefferson, a Biden appointee who came to the FED after a long career in Academia. Engineering an early departure of Powell just to put Jefferson in his place seems like it would be at best a pyrrhic victory.

Some have suggested the Federal Reserve board could also vote to keep Powell as chair until a replacement is confirmed. When Powell’s first term as chairman expired in February 2022, during Biden’s presidency, he was elected by the FED Board to serve and act as chairman pro tempore until his eventually confirmed in May of that year. This has also happened a number of times in the past, when there was a lapse between the expiration of a chair’s term and the confirmation of a new one. There is precedent for this.

However, back in 2022, Biden already announced he would reappoint Powell to keep him in place. When his formal chairmanship lapsed for a few months, it was not controversial. Trying to keep Powell in place this time would no doubt lead to litigation and further embroil the Federal Reserve in a political battle with the Trump White House. The Federal Reserve Act only authorizes a chairman pro tempore when both the chairman and the vice chairman are absent.

Yet, the possibility of an extended vacancy at the FED is not a theoretical risk. Senator Thom Tillis (R-NC) immediately reacted to Powell’s video on Sunday by declaring that he would block any nominee until the investigation is resolved. Senator Lisa Murkowski (R-AK) also said she would block Trump’s nominations until the investigation into Powell is resolved, going so far as to say it is “clear the administration’s investigation is nothing more than an attempt at coercion.”

At least on a formal level, this is the constitutional and statutory role of the Senate. Unlike other statutes, the Federal Reserve Act doesn’t specifically define what actually constitutes cause for the removal of a FED Governor, and, it provides no protections whatsoever for the chairman against removal. The constraints on removal are really the need to satisfy the Senate that such a removal was deemed proper in order to confirm a new nominee.

However, that the Senate’s ability to keep the FED Chairmanship vacant may be limited by precedence. A 1978 Office of Legal Counsel (OLC) memo argued the statutory provision which allows the vice chair preside in the chair’s temporary “absence” does not specifically cover any permanent vacancy arising from the expiration of a chair’s term; and presuming an automatic vice-chair succession could be legally in doubt. OLC instead concluded because there is no explicit succession mechanism in place which provides for filling a vacant chairmanship, the President may designate a sitting governor as acting chair until the Senate confirms a nominee. If that’s correct, then a blockade by Tillis and Murkowski could increase Trump’s room to maneuver, though any acting chair’s practical power would still rely on whether the rest of the Board and FOMC’s cooperation.

Trump denies he has had anything to do with the investigation. In an interview with NBC News on Sunday, Trump said he didn’t even know about the subpoenas: and any ongoing criminal investigation had nothing to do with his disagreements with Powell over interest rates. The Powell FED finally did start cutting rates in September; moving in that direction at the urging of Trump. An executive attack against Powell after he has already complied with Trump’s demands for cuts; would be an unlikely strategic mistake.

✪ Is Powell A “Renegade Archbishop?”

What’s really happening here? There are two possibilities. First, this may be a case of over-enthusiastic Trump supporters, including people in his administration, pushing the Justice Department to pursue Powell. A Bloomberg report citing anonymous sources claimed Federal Housing Finance Agency head Bill Pulte was the “driving force” behind the decision to subpoena Powell. Pulte’s job in the past has been to act as a kind of FED watchdog to bring to light criminal allegations of mortgage fraud against Fed Governor Lisa Cook. Pulte referred that matter directly to the Justice Department.

This situation between Trump and Powell brings to mind the infamous assassination of Thomas Becket, the Archbishop of Canterbury, after his fall out with King Henry II over the respective powers of the church and the crown. A frustrated Henry asked, “Will no one rid me of this turbulent priest?” Four knights supposedly took this as an implicit order and murdered Becket in his cathedral. The murder created a massive scandal across Christian Europe and Becket was quickly canonized as a martyr while Henry was forced to do public penance. The King claimed he was only venting his frustration and his intention was never for Becket to be killed.

In Richard II, Shakespeare tells a similar story. The play opens with the aftermath of the mysterious death of Thomas of Woodstock, the Duke of Gloucester. King Richard II had a personal conflict with Gloucester, a powerful noble who opposed Richard’s policies. Like King Henry II with Becket, Richard never explicitly ordered the murder. Instead, he appears to have expressed his wishes in a way which may have led his supporters to kill the Duke. For Richard, the murder of Gloucester sets a chain of events in motion which culminates with him losing his crown and life.

Perhaps there is a valuable lesson to be found in the repetition of these cautionary tales about subordinates who misinterpret the expressed frustrations of their leaders as an order to take action.

The remaining possibility is one which has been almost wholly ignored: the Department of Justice may have substantial evidence & reasons to believe that Powell has committed a crime, perhaps even perjuring himself in his Senate testimony. What is being framed by the FED and Media as a political vendetta may in truth be the machinery of justice in action. To declare Powell as a modern martyr, a Becket or Gloucester of our time, seems premature in the absence of public evidence.

Powell’s statement amounts to a kind of self-canonization and a condemnation of the Trump Administration for the heresy of breaching the central bank’s independence. However, the rest of us need not take Powell’s statements as Gospel. On Monday, the financial markets certainly didn’t appear to believe the claims Trump is a threat to the independence of the Federal Reserve. ✪