Trump sics the DoJ on Powell

Trump sics the DoJ on Powell

When I first saw that Trump’s Department of “Justice” had opened a criminal investigation of the Fed’s Jerome Powell and the renovations of the Fed’s headquarters buildings I thought it was an April Fool’s joke. Only it was January 12^th. My reaction was “This has got to be a joke.” Only it isn’t. It is just the latest in a long line of actions by a president who seemingly alternates muscular initiatives with childishness. The renovations were initially projected to cost $2.5 billion but the new estimate is $3.1 billion. In the parlance of the Federal government, that is underbudget. I am fairly certain that Powell, himself, did not make the estimate of the cost. Trump knows this but is going after him anyway. Trump should know better and be ashamed – if possible. His new ballroom was supposed to cost $200 million but now is estimated to cost $400 million. So Trump should have his “Justice” Department open a criminal investigation of himself. Hardly.

Pam (Blondie) Bondi’s spokesperson’s statement regarding Powell was as hilarious as it was ignorant. It was “The Attorney General has instructed her U.S. Attorneys to prioritize investigating any abuse of taxpayer dollars.” Well the Fed is not abusing taxpayer dollars since it is self funding through assessments and earnings on its own portfolio, Much like Trump said that his new Taj Mahal will be paid for with private monies and not that of the taxpayers, the same can be said for the Fed. But Powell insists this is no Taj Mahal.

All of this renovation nonsense came about because of a New York Post article describing the changes as akin to the “Palace of Versailles.” Powell responded at a congressional hearing that “There’s no VIP dining room. There’s no new marble. There are no special elevators. There are no new water features. There’s no beehives, and there’s no roof terrace gardens.” Powell even gave the president a tour of the facilities to show the state of repairs. 

We all know the reason behind all of this. The president despises Jerome Powell for not bending to his will. He has vilified Powell, called him every name imaginable, continuously personally insulted him, cajoled and berated him for not immediately lowering interest rates to one percent. It is no coincidence that the notice of inquiry from the “Justice” Department comes right before the next Fed Open Market Committee meeting on January 27 and 28. Intimidation anyone? We know that Trump’s governor Miran will vote for a decrease in the Fed funds rate of 50 basis points before leaving on January 31st. If I were Powell I would recommend increasing the Fed funds rate by 100 basis points. But Powell is to much a gentleman to strike back at the president.

However, Thom Tillis (R-NC) who is on the Senate Banking Committee did say “If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question.” Wow!

Tillis then said that he will “oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter isfully resolved.” That means no hearing when Miran’s term ends on January 31^st and no hearing on a new chairman. Speaking of which, Bessent is supposed to interview BlackRock’s chief investment officer’s Rick Reider for the Fed chair. I don’t know about you but I wouldn’t want any employee of Larry Fink’s near the Fed.

Powell who has shown remarkable restraint toward the president issued a statement in part saying “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. I have deep respect for the rule of law and for accountability in our democracy. No one, certainly not the chair of the Federal Reserve is above the law, but this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.”

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

His full statement is here: https://www.federalreserve.gov/newsevents/speech/powell20260111a.htm

Not only is this so-called investigation an act of vengeance it is also incredibly stupid. Powell is a short-timer with his term as chairman ending in May. Although he could continue as a governor until 2028, he most likely will resign from the Board leaving Trump with another nominee. Trump of course was pushing for low interest rates first to stave off a possible economic downturn and now to lower the cost of borrowing on the Federal debt (so he can borrow more). This action of his against Powell may backfire leaving the Treasury with higher borrowing costs if the markets think that Fed independence has been compromised. Indeed, the markets fell, the dollar sank and gold rose as overnight markets reacted to the news of the Fed subpoenas, a sign of investor concern about central bank independence.