Liz’s view
You can disagree with President Donald Trump’s policies while understanding their political logic. Many Americans have real concerns about immigration. Promising to revive manufacturing is popular. But a criminal investigation into Federal Reserve Chair Jerome Powell — who is this for?
No normal person understands monetary policy. Anyone who decides to learn between now and May, when Powell’s term as chair expires and Trump can appoint a more pliant replacement, will be wary of interest-rate cuts that could rekindle inflation. Worse, the mortgage rates that voters care about don’t even track the overnight rates that Trump wants the Fed to cut faster. They generally follow long-term rates that haven’t budged — partly due to inflation fears that this very type of meddling creates.
The whole thing is financially and politically self-defeating: Republican senators have already criticized the investigation, my Washington colleagues reported. One, Sen. Thom Tillis, said he won’t confirm Powell’s replacement “until this is settled.” The investigation could also steel Powell to stay on as a member of the Fed’s board after he hands over the gavel, which he is allowed to do until 2028.
This counterproductive score-settling (which even Treasury Secretary Scott Bessent knows was a mistake, per Axios) might explain why financial markets mostly shrugged. That’s the glass-half-full assessment of economist Justin Wolfers, who I joined on today’s Prof G Markets podcast. He thinks this makes it harder for Trump to install a yes-man at the Fed, which investors took as a positive. My gloomier take is that investors have gone numb to chaos and the feedback loop that forced Trump to walk back his tariffs last spring is getting dangerously fuzzy.
In this article:
The View From Donald Trump
After telling reporters “I don’t know anything about” the probe on Monday, Trump leaned into his criticism of Powell on Tuesday. “Well, he’s billions of dollars over budget. So he either is incompetent, or he is crooked,” he told White House reporters. “I don’t know what he is, but he certainly doesn’t do a very good job.”
Notable
- Watch Powell’s video response.
- Complaints about the Fed’s unaccountability — the flip-side of its independence — have brewed for years and gained steam in the wake of the 2008 crisis, which expanded its power and its balance sheet.
- Rockefeller Capital Management wrote a few years ago that the problem isn’t a central bank shrouded in mystery and unaccountable to political leaders, but too much transparency.