News broke last night that at Trump’s behest, the Federal Reserve received grand jury subpoenas from the Justice Department, threatening a criminal indictment against Chair Jay Powell. The charges are nonsense—nothing about monetary policy; just ginned up, phony accusations that Powell lied to Congress regarding the renovations of Fed buildings—and markets are reacting negatively this morning to this threat to the central bank’s independence, as they should, with equity futures down, gold and interest rates up.

Trump’s attack on Powell and the Fed for not lowering interest rates more aggressively than they’ve been doing has been ongoing since he got back in office. And until now, Powell’s response has been to keep his head down, even when that head was covered with a hardhat, not engaging with Trump and calmly doing data-driven monetary policy.

No mas. It takes a lot to get our embattled Fed chair to take the gloves off but that’s what he did, releasing this powerful statement and video last night (my bold).

This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. 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.
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 served at the Federal Reserve under four administrations, Republicans and Democrats alike. In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.

There are many reasons why Trump’s latest attack is just plain dumb.

First, the renovation pretext is phony baloney. Powell’s statement re this is correct. He did not lie to Congress, and I wouldn’t be surprised if Trump and co. fail to even get the grand jury to indict. As you likely know, there’s precedent for such failures lately as high-level cases (Letitia James, Comey) brought on flimsy evidence and flawed procedure have collapsed.

Second, Powell’s term ends in a few months. True, he could move from the chair to the committee, wherein his term would last two more years. But to the extent that Chair Powell is a problem for Trump, May is not far off. Why create all this market-moving angst? (I have an answer to that below.)

Third, while Trump can and will replace Powell with a someone to do his bidding on rates, the chair is but one member of the committee that votes on Fed interest rates, so for Trump to prevail he’d have to replace more members with his puppets. True, he’s working on that too, and perhaps this latest move is intended to intimidate the others.

Fourth, market investors are, as noted, not happy with this new action. Many of these participants are aware of the fact that history is littered with economies that have been severely damaged, typically through runaway inflation, when the political independence of the central bank is compromised. There’s a plausible scenario wherein even as a Trump-driven Fed is lowering rates, markets could push hard in the other direction.

Fifth, the Fed is already lowering interest rates! They have to do so step-by-step, versus Trump’s demands for bigger cuts, but there’s no credible, responsible Fed that would cut at the rate he demands.

Finally, this Fed under Chair Powell’s direction is doing precisely what we need him to do and what he said in his statement: “set[ting] interest rates based on evidence and economic conditions.” Not on political considerations, but on economic and financial ones. And, while close Fed-watchers will always have some legitimate beefs with the central bank’s implementation of monetary policy, they’ve got a very solid record, most recently helping to pull off a rare “soft-landing,” helping to bring down inflation without causing an economic downturn.

Source: Federal Reserve Board/Haver Analytics

I am fortunate to be friends with David Wilcox, a former high-ranking Fed staffer (director of research) who is one of the most respected voices these days on all issues regarding the institution. Here’s his highly efficient summary of this moment.

President Trump is clearly frustrated that he hasn’t been able to force the Fed to set rates based on his wishes rather than the cold analytics of the situation. This is his latest effort to escalate the battle. Unfortunately for the President, he has chosen to do battle with someone not prone to being intimidated — because that’s not Jay Powell’s personal character and because Powell has some pretty robust institutional protections coded in the Federal Reserve Act.

Exactly.

Like I said, this case may not even have the legs Trump seems to think it does. What I think he’s doing here is just desperately flooding the zone on a daily basis, weekends included. Whether it’s illegally invading a sovereign nation, shamefully avoiding accountability for ICE killings, throwing out one bad “affordability” idea after another, harassing private businesses to do his bidding (most recently, oil companies who are wisely cautious about investing in a highly unstable country), or trying to undermine the independence of the Fed, he’s flailing like a madman. The only king he reminds one of at this point is King Lear.

The goals are to push the Epstein files out of the news, to “stick it to the libs,” to manifest his xenophobia, enrich himself, distract the media, etc. And don’t get me wrong: I’m not dismissively saying none of this matters. Of course, it does. But at this point, it’s just a constant firehose of destructive, and even murderous, chaos.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.