Good morning. Andrew here.There are certain moments that deserve extra reflection. Today is one of them. The criminal investigation into Jay Powell, the Fed chair, ostensibly over his testimony about building renovations appears to be yet another politically motivated attack by the Trump administration.
In a nation whose success is largely tied to a belief in the rule of law, the perception that the administration is using “lawfare” to undermine the Fed’s independence is a striking example of how norms are being shattered — and how business executives have remained conspicuously silent. More details below. (Was this newsletter forwarded to you? Sign up here.)
Powell fights back
Markets are on edge after the Trump administration made its most direct attack yet on Jay Powell, the Fed chair — and seemingly at the political independence of the central bank.
For now, the battle seems unlikely to produce the drastically lower interest rates that President Trump has long demanded. It also may cast more of a pall over whoever replaces Powell, and perhaps further erode investors’ belief in the Fed’s stability.
The latest: U.S. stock futures are slightly lower this morning, after news outlets reported that Powell faces a federal criminal investigation, ostensibly related to the renovation of the Fed headquarters.
But the dollar was down, while the prices of gold and silver, classic safe-haven assets, climbed to new records. The yields of various U.S. Treasury bonds, which rise when their prices go down, were up.
Powell’s response, from a statement the Fed issued last night (along with a rare video messagefrom the chair):
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.
Trump has already taken aim at a Fed governor, Lisa Cook, whose efforts to resist being fired by Trump are expected to be heard by the Supreme Court next week.
Trump claimed that he had no advance knowledge of the Justice Department’s case. He told NBC News, “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings.”
On claims that the case was meant to pressure Powell into lowering interest rates, Trump added: “I wouldn’t even think of doing it that way. What should pressure him is the fact that rates are far too high.” (That said, Trump said late last month that he might sue Powell for “gross incompetence.”)
Among those behind the case are Jeanine Pirro, who runs the U.S. attorney’s office for the District of Columbia, according to The Times, and Bill Pulte, the top housing official in the administration who also pushed for the Cook investigation, according to Bloomberg.
The move came as something of a surprise, as Trump had appeared to back off threats to Powell after he visited the Fed construction site over the summer, suggesting that he wouldn’t seek to fire the central bank chief and wanted the renovations to proceed.
“We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” Krishna Guha, a vice chairman at Evercore ISI, wrote to clients.
And it may backfire, critics warn:
- Several economists said Powell’s statement suggested that the Fed would be even less likely to cut interest rates at its meeting this month. The central bank was already seen as unlikely to do so, given recent economic data, but Fed futures suggest there’s just a 5 percent chance that it will do so this month and probably won’t move until June.
- Senator Thom Tillis, Republican of North Carolina and a member of the Senate Banking Committee, said he would oppose the confirmation of all picks for the Fed, including the forthcoming chair nomination, until the legal matter is resolved.
- Moreover, Bloomberg reports, some administration officials are worried that directly attacking Powell makes it less likely that he will leave the Fed after his term as chair expires in May — making it harder for his Trump-appointed successor to build consensus for lowering rates quickly. (Powell can stay on as a governor until early 2028.)
HERE’S WHAT’S HAPPENING
Oil prices waver as President Trump suggests he may intervene in Iran. President Trump said he was reviewing military options after the death toll from a government crackdown on protesters rose sharply, spurring concerns that Tehran could retaliate against global oil shipments. Trump also weighed in on Venezuela, saying that he was “inclined” to keep Exxon Mobil from drilling there after its C.E.O. called the country “uninvestable.”
Countries block access to Grok over A.I.-generated sexualized images of real people. Malaysia and Indonesia barred xAI’s chatbotafter global outrage over a tool that let users digitally undress women, often without their consent, or children. (On Friday, Grok began limiting access to the feature.) Separately, Google has pulled A.I. overviews for some medical queries after reports of “dangerous” mistakes in them.