The criminal investigation of Jay Powell by US prosecutors has prompted top Federal Reserve leaders to resist attacks from President Donald Trump and could push the chair to remain governor until 2028, officials say.
Powell’s revelation over the weekend that Trump’s Justice Department had asked a federal grand jury to subpoena the Fed was seen by those close to the US central bank as a sign that the president will go to extraordinary lengths to force policymakers to bow to his demands.
“People inside the Fed will find this development really worrisome and will see it as a statement that Trump intends to completely seize control of monetary policy,” said former Fed chair Janet Yellen, now at the Brookings Institution think-tank.
“Those who are concerned about threats to liberty may be willing to hold on so that there are fewer seats available for Trump to gain control of the board,” Yellen said.
The investigation, which focuses on Powell’s testimony to Congress about a $2.5 billion renovation of the Fed’s headquarters, is viewed by some members of Trump’s own Republican Party as well as Fed insiders as a serious threat to the independence of the world’s leading central bank.
It marks a serious escalation in the battle between the Fed and the White House, with Trump calling Powell an “idiot” and a “stubborn mule.” Trump is also calling for Governor Lisa Cook to be fired over mortgage fraud allegations – which she denies.
Trump has denied any direct involvement in the DoJ investigation, but he has repeatedly talked about firing Powell.
Jeanine Pirro, US attorney for the District of Columbia, in a Post Ax said late Monday that his office had “contacted the Fed on multiple occasions to discuss the cost increases and the Chairman’s congressional testimony, but were ignored, making it necessary to use the legal process – which poses no threat”.
He said Powell alone mentioned the word “impeachment” and that the U.S. attorney’s office in Washington “makes decisions based on the merits.”
Powell, who appointed top Washington prosecutors Williams and Connolly even before the grand jury issued subpoenas, is adamant that he will remain in office at least until his term as chairman ends in May.
The aggressive nature of Trump’s pressure campaign against Powell may even backfire and persuade him to remain on the Fed’s board as a governor until his full term ends in January 2028.
David Wilcox, a former senior Fed official who is now at the Peterson Institute, said, “Why bother announcing it now, with only a few months left in Powell’s term as chairman? The only answer I can come up with is that its purpose would be to try to intimidate Powell and his allies.”
“The problem from the president’s perspective is that Powell is not a person who can be easily intimidated. It’s not his personal character.”
Wilcox, who also works for Bloomberg Economics, said his belief as of Sunday evening was that Powell would leave the Fed in May.
“My guess is that the weekend announcements of the criminal investigation have changed that calculation dramatically and made Powell’s chances of leaving office almost zero,” he said. “He will now see the seriousness of the threat to the institution and will likely feel he has no choice but to stay.”
Robert Tetlow, an economist who recently retired from the Fed, said: “It certainly could change the calculus about whether Powell will leave.”
Fed officials view the administration’s allegations that Powell misled Congress as baseless and believe DoJ prosecutors will struggle to win the case against her.
While the Fed’s renovation is $700 million over budget, other construction projects — including Trump’s reconstruction of the East Wing of the White House — have also struggled to come within cost.
People close to the Fed said the investigation could lead to a wide range of reactions, from governors to rank-and-file economists.
John Faust, a former adviser to Powell who is now at Johns Hopkins University, said, “Everyone will be collectively horrified. I think how it affects their individual choices will vary.”
“It’s going to upset people. There’s going to be at least a segment of the staff that says, ‘Maybe I should try to go somewhere else,'” Tetlow said.
All living Fed chairmen rebuked the DOJ investigation on Monday, warning that the investigation was “an unprecedented effort to use prosecutorial attacks to undermine the Fed’s independence.”
Yellen, along with Ben Bernanke, Alan Greenspan and several senior former economic officials from Republican and Democratic administrations, warned of similarities to “how monetary policy is made in emerging markets with weak institutions, with extremely negative consequences for inflation and the functioning of their economies.”
The controversy comes as the president is expected to announce his pick for the next central bank chief later this month.
But Washington insiders believe that the jobs, which already seemed at risk due to Trump’s repeated calls for extremely low rates and moves to fire Cook, have become completely bleak after the DOJ investigation.
Two Republican senators – Thom Tillis and Lisa Murkowski – have already said they will not support the president’s pick as long as the investigation into Powell continues. The number of objections is expected to at least triple in the coming days by some within the Fed.
“This makes the independence of Chairman Powell’s successor more important than ever – every senator will have the opportunity to vote yes or no,” said Michael Strain, a former New York Fed economist who is now at the conservative American Enterprise Institute think-tank.
Yellen said that, no matter who the president chooses, they will now have to struggle to convince the markets that they are truly free.
“You come in and you’re immediately viewed as someone who certainly told Trump you’re going to obey him to get the job,” Yellen said.
“It’s going to be extremely difficult to establish your independence. And the other members of the (Federal Open Market Committee) have outclassed you massively.”
