By gunning for the Fed’s Jerome Powell, Donald Trump is playing with fire
Donald Trump says he did not know about the US Department of Justice’s threatened criminal prosecution of Federal Reserve chair Jerome Powell.The president may have presented that as a washing of his hands – as “nothing to do with me, guv”. If so, it creates a deeply worrying scenario, in which one pillar of American government moves against another, possibly in the belief that Trump wants rid of its head. There is a “Will no one rid me of this turbulent priest?” aspect to it that is impossible to ignore.What this shows, not for the first time, is that the Trump administration is no longer operating according to any principles of objectivity, and that it is entirely subjugated to its master, compliantly anticipating and carrying out his wishes. In some instances, that may not matter greatly. But with the Fed, Trumpian officials are playing with fire.If there is one arena that Trump cannot control, it is the markets. They do not do emotion. They do not idolise him or anyone else, nor are they swept along in his wake. And they are not American. They’re global, unsentimental and unforgiving. Already this morning, on the back of continuing protests in Iran and news of the probe into Powell, they were moving against Trump. Gold and silver – safe havens in fragile times – hit record highs.Try as he might, Trump cannot bully the markets. They will not be beaten into submission. He knows this, of course, having experienced at first hand, in real-estate development, how quickly they can turn, and how brutally they can force retreat.In them – as in the Fed, which is supposed to maintain independence as it determines interest rates, and in Powell himself – Trump is up against an intractable foe. He does not like it; worse, he hates it.He wants rates reduced, borrowing and spending to rise, and US companies to flourish in their own backyard. But lower rates can act as a catalyst for inflation – something Powell and his colleagues are determined to avoid. Trump wants to gamble; they wish to stick.As a result, Powell – charged with safeguarding the health of the world’s mightiest economy – now finds himself under scrutiny and receiving subpoenas over the refurbishment of Federal Reserve buildings. The cost of modernisation has risen, partly due to the discovery of asbestos and lead contamination. In years to come, argues the Fed, the higher bill will more than pay for itself, as the improved premises will be cheaper to maintain.Regardless, the episode is trivial and pathetic – but entirely par for the course where this president and his acolytes are concerned. “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,” Trump said of Powell.For his part, the chair is under no illusion as to what is really happening. “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,” Powell warned.The Fed chief added: “I have deep respect for the rule of law and for accountability in our democracy. No one, certainly not the chair of the Federal Reserve, is above the law, but this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.”It is that backdrop that is so corrosive. If there were a dispute about refurbishment costs in isolation, so be it. But Powell is right: it cannot be divorced from the wider reality that Trump wants him gone, and that the president has repeatedly lambasted the Fed for not cutting rates as quickly as he demands.As ever with Trump, inconvenient historical detail is forgotten. He may loathe Powell today, but it was Trump himself who nominated him to the Fed post in 2017. That awkward fact is brushed aside in the rush to vilify and ridicule.Powell was all right then; he is no longer. He must go – and he is going. Powell leaves in April, and Trump is expected to name his successor by the end of this month. Three candidates are thought to be leading the race: Kevin Hassett, a Trump loyalist; Kevin Warsh, a fierce Fed critic; and Christopher Waller, a serving Fed governor. Predictably, Trump has declared, “I think the two Kevins are great.”The smart money, however, is drifting towards Waller. He is not quite such an obvious Trump placeman, which allows the president to claim a measure of detachment, while his appointment would create another vacancy on the Fed board – one that Trump could fill with a more reliable ally.Other names are also in the frame, including BlackRock’s CIO Rick Rieder and US Treasury secretary Scott Bessent.Come what may, Powell is on his way out. The prosecutors could have bided their time and got their ducks in a row. But since when has this US government been known for patience? As with the choice of target itself, the rush to indict speaks volumes.
