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The author is an FT contributing editor and director of economic policy studies at the American Enterprise Institute
Thom Tillis, a Republican member of the Senate Banking Committee, showed his colleagues the appropriate response to the Justice Department’s investigation of Federal Reserve Chairman Jay Powell when he Promise To oppose the confirmation of Powell’s successor “until the legal matter is fully resolved”.
Powell faces a criminal investigation over testimony he gave to the Banking Committee about the renovation of the central bank’s headquarters. This investigation is clearly a thin excuse to pressure the Fed to lower interest rates as per the President’s wishes and to intimidate current and future members of the rate-setting committee into capitulating to Trump.
There is a direct line from the possible prosecution of Powell to the inflation rate. If investors and businesses believe the central bank is making decisions about interest rates based on the president’s priorities, they will be skeptical of the Fed’s willingness to raise rates when the economy is generating inflationary pressures. Their concern is that inflation could consistently exceed the Fed’s 2 percent target in the future, putting upward pressure on today’s prices.
The increase in inflation expected in the future will also put pressure on long-term interest rates. Long rates could also rise if Powell is impeached due to concerns about the stability and integrity of America’s institutions.
Congress has recognized that low and stable inflation is best managed by a central bank that is independent of the political desires of elected officials to juice the economy. Because of this long-standing bipartisan consensus, the Senate should play its constitutional role in approving Fed nominations more aggressively than the President’s Cabinet nominees.
Encouragingly, other Republican senators – including some who are not leaving office like Tillis – have spoken out about the Powell investigation. John Kennedy, a Louisiana Republican who sits on the Banking Committee, said last Monday: “We need it like we need holes in the head.” Senate Majority Leader John Thune called for the matter to be “quickly resolved” and reaffirmed his support for the Fed’s independence.
Alaska’s Lisa Murkowski has gone further, issuing a statement Tillis’ “decision to hold off on any Federal Reserve nominee until this is resolved is the right one.” Powell’s term as chairman ends in May, but he will remains He will remain in office until his successor is confirmed.
These public statements have been promising. The world learned how far those around Trump are willing to go to take over the Fed. Once the legal threat to Powell is resolved, this episode makes it even more important that the Senate ensure that Powell’s eventual successor is widely viewed as independent.
There are some broader lessons from last week. For one, the administration’s use of the law is falling sharply among Republicans. Thune captured the emotions of Capitol Hill notes Last Tuesday: “If the Justice Department is doing something,” he said with a hint of exhaustion, “I hope they have a smoking gun.”
Trump’s refusal to confirm Powell’s successor until this investigation is dropped may make Trump think twice about weaponizing the justice system in the future.
The chaotic frenzy of activity around the President and him is also subsiding. To name a few recent examples: Trump collaborated with hard-left progressive Senator Elizabeth Warren to impose a cap on credit card interest rates, announced wildly fluctuating tariffs, and opportunistically emboldened private companies with aggressive immigration enforcement and a vague plan for Venezuela.
I’ve been struck over the past few months by how common it is to hear Republicans in private conversations express deeper frustrations toward the White House — and toward the president himself — than at most points in Trump’s first term before the pandemic. When the 2028 GOP presidential campaign kicks into gear later this year, I expect this trend to accelerate.
King Henry II may not have ordered the murder of Thomas Becket – but those around the king were taking their cues from him when they executed the archbishop in Canterbury Cathedral. If Trump does not direct the Justice Department to launch this investigation, he needs to reevaluate his signals and those around him.
When the dust settles from this shocking episode, the Senate may emerge stronger by asserting itself and forcing an end to the Powell investigation — and by ensuring that Powell’s successor is independent from the priorities, whims, and intrusions of an overactive and uncontrolled president.
