Blasé Capital Powerless powell?

Even as his term nears an end, with a new appointment scheduled later this month, Jerome Powell, chairman, Federal Reserve, finds himself in trouble for the nth time. However, this time, the problem seems stickier, and criminal in nature. Powell revealed that the US Department of Justice (DOJ) had opened a criminal investigation against him, and the Fed, over an official testimony he gave regarding the renovation works at the Federal Reserve’s buildings. While President Donald Trump denied any knowledge about DOJ’s action, Powell claimed that the probe was “unprecedented.” The two protagonists have been at loggerheads for months and, according to a media report, “Trump has repeatedly threatened to remove Powell.” The Fed chairman agreed, “I have a deep respect for the rule of law and accountability…. No one… is above the law, but this unprecedented action should be seen in the broader context of the administration threats, and ongoing pressure (on him).”

Although Trump and Powell have fought over the issue of interest rates for nearly a year, the current imbroglio stems from the Fed’s decision to renovate two buildings, which were constructed in 1931. The Fed justified it by stating that the work will reduce costs in the future. Trump criticised the “ballooning costs,” and argued that the estimates went up nearly by a quarter to over $3 billion. The DOJ may determine whether Powell failed to disclose the cost escalations during his testimony about the renovations to a Senate committee. The criminal nature of the exercise makes it more crucial than the mere verbal threats, warnings, and tirades from the president. Like it or not, Powell will need to grapple with the probe, rather than brush it aside like he did with the earlier rantings by Trump. Unless he gets another term, which is a near-impossibility, the chairman will deal with the issue while he is not in power.

These are early days, but reports suggest that Powell may get the support from both the political parties. A Republican senator, quoted in a media report, said that he would “oppose the nomination of Powell’s replacement… ‘until this legal (and criminal) matter is fully resolved’” because now the “independence and credibility of the Department of Justice” was “in question.” A Democrat senator agreed that the Senate Banking Committee, and the senate “should not move forward with any Trump nominee for the Fed, including Fed Chair.” Both agreed that the purpose behind the latest criminal probe was to dilute the powers of the Fed. The Republican senator said, “If there were any remaining doubt whether the advisors within the Trump administration are pushing to end the independence of the Federal Reserve, there should now be none.” The Democrat senator added that Trump’s plan was to “install another sock puppet to complete his corrupt takeover of America’s central bank.”

Powell agrees with such assessments, and hints that the probe relates to Fed’s disagreements with the president on interest rates. For months, the president wanted the central bank to reduce the rates faster, and blamed the high interest for inflation, and high costs. However, the Fed reduced the rates thrice, but only in the second half of the last calendar year (2025), and by lower rates. The president tried to change the composition of the Federal Board to change the voting composition, and get a consensus in his favour, but failed to achieve this objective. Powell stood his ground, and reduced the rates when he deemed feasibly, and what he deemed useful. The tussle went on for a year, although Powell was Trump’s nominee during the latter’s first term. But like several of the president’s nominees, he took an independent stance once he assumed the office.

According to Powell, the issue 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.” An independent analyst, quoted in a media report, feels that since the Fed has indeed reduced the interest rates thrice in the past few months, though lower than what the president wished for, “this (criminal probe) does feel like perhaps it is pressure that is not really justified.” To hedge the bets, the expert adds that Trump’s aim is to benefit all parts of the economy. “For people at the lower end of the income spectrum things have been difficult, inflation was very high, wages were not keeping up with inflation, and so there is a big part of the US population that frankly is still suffering with a cost-of-living crisis,” she explains. Hence, there was a justification for further fall in the interest rates.

In the past, as mentioned before, Trump took on Lisa Cook, a governor at the US central bank, and part of the Fed Board, but the firing was stalled by a US federal court. It will be heard by the Supreme Court later this month. The president fired others, who did not agree with his views, and criminal charges were brought against adversaries like General Letita James, and James Comey. Both the cases against the New York attorney (James), and the former FBI chief (Comey) were dismissed by a court. While Comey was fired during Trump’s first term for initiating an investigation into Russia’s interference in the 2016 presidential elections, James brough a civil fraud case against Trump in 2024, when the latter was out of power.