Unprecedented events are unfolding in the US, with the Chairman of the Federal Reserve taking the extremely unusual step of releasing a video openly accusing the Trump administration of using the Department of Justice to exert pressure on the US central bank. As he stated, the Fed received subpoenas on Friday related to a grand jury investigation, as well as threats of criminal prosecution concerning the renovations of the Fed's headquarters in Washington and his related testimony before a Senate committee last year. However, according to him, these investigations are merely "pretexts."
The real goal, he argued, is to undermine the independence of the Federal Reserve. The accusation is explosive. Powell is not just accusing the Trump administration of attempting to limit the Fed's autonomy, but of weaponizing the DoJ to achieve it. Equally provocative was the way he chose to do it: a two-minute video, released just before markets opened in Asia. It would be difficult to design an intervention more capable of causing turmoil in international markets — though it is impossible to know if that was Powell's goal. In any case, the timing and form of the intervention ensured that the message would reach global markets immediately, leaving the White House with little room to manage it discreetly.
Markets did not panic
If the goal was to trigger a sell-off, it was not achieved. There were no signs of collapse. By Monday afternoon, even the initial limited losses had been erased, with the main indices moving into positive territory. Investors refused to panic in the face of the alleged threat against Fed independence. The S&P 500 even closed at a new all-time high.
Trump's "hasty condemnation"
Commentators and traditional media rushed to fully accept Powell's allegations, condemning Donald Trump for attempting to control monetary policy without even waiting for evidence. Verdict first, evidence later — a familiar reaction to any accusation directed at Trump. Markets, however, seem to have discerned that Powell's claims do not fully "hold up." Even if Trump wanted to use legal means to force Powell out, what would be the benefit? Powell's term as Fed Chair expires in just five months, and he has only three FOMC meetings left as chairman. Why pressure someone to leave when they are already near the exit anyway?
It is true that Powell could remain as a member of the Fed Board until 2028. However, a DoJ investigation would likely prompt him to stay rather than leave. Powell now views the case as a personal battle for his integrity and as an attack on the Fed's independence. If he didn't intend to stay, perhaps now he will.
Risks to Fed operations and the role of the Senate
The use of the DoJ for a personal vendetta could also alienate the rest of the FOMC members, many of whom maintain close ties with Powell. Even if an investigation eventually led to his removal, the next Fed chair would face a committee determined to prove its independence, refusing to align with the administration's economic policy.
The role of the Senate is also decisive. Trump needs the Senate to confirm Powell's successor. The Federal Reserve Act does not provide for the appointment of an interim chair by the White House; if a nominee is not confirmed, the position remains vacant. In the event of a chairman's "absence," leadership is assumed by the vice-chair, namely Philip Jefferson, a Biden appointee. Removing Powell prematurely just to hand leadership to Jefferson would be a pyrrhic victory.
Some have suggested the Fed Board keep Powell as chair until a replacement is confirmed, as happened in 2022. Back then, however, Joe Biden had already announced he would reappoint him, making the solution non-controversial. Today, such a move would almost certainly lead to legal battles and deepen the conflict with the White House.
Political block and legal gray zones
The scenario of a prolonged vacancy is not theoretical. Senators Thom Tillis and Lisa Murkowski stated they would block any nominee until the investigation into Powell is completed, with Murkowski calling it a "clear attempt at coercion."
Nevertheless, a legal opinion from the Office of Legal Counsel (OLC) from 1978 leaves open the possibility that the president could appoint an acting chair from existing Fed members in the event of a permanent vacancy. If this interpretation holds, the Senate block could ultimately give Trump greater flexibility.
What is really happening?
Trump himself denies any involvement. In an interview with NBC News, he stated he was not even aware of the subpoenas and that any investigation is unrelated to his disagreements with Powell over interest rates. It is recalled that the Fed finally began cutting rates in September, moving in the direction Trump had requested.
There are two likely scenarios.
The first is that overzealous Trump supporters — potentially within the administration — pressured the DoJ to move against Powell. According to a Bloomberg report, citing anonymous sources, the head of the Federal Housing Finance Agency, Bill Pulte, was allegedly the "driving force" behind the subpoena.
The second, less discussed possibility, is that the Department of Justice has serious reasons to believe that Powell committed a criminal offense, potentially perjury before the Senate. In this case, what is being presented as political persecution could simply be the functioning of justice. In any case, Powell's self-presentation as a modern martyr for central bank independence seems premature. Markets, at least, did not seem convinced that Trump is substantially threatening the independence of the Federal Reserve.
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