Targeting Powell

National Review Online

Tuesday, January 13, 2026

 

Tensions between a president and a Federal Reserve chairman are nothing new. Up until now, they may have reached a peak when Lyndon Johnson shoved William McChesney Martin at the LBJ ranch. Martin gave in a while later, another step into the inflationary quagmire from which the U.S. emerged only after Paul Volcker reasserted the Fed’s independence.

 

However bad that Texas moment, it falls far short of the Department of Justice’s serving the Federal Reserve with grand jury subpoenas on Friday. They relate to testimony given to the Senate Banking Committee concerning an over-budget renovation project and come with the threat of criminal indictment.

 

Chairman Jerome Powell’s response was blunt. No one, “certainly not the chair of the Federal Reserve,” is above the law, but, he argued, this was not about his testimony or the renovation. Those were “pretexts.” Rather, it was “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.”

 

We cannot pretend to know every detail of the renovation project, but given this administration’s penchant for targeting for investigation or prosecution anyone who crosses it, the chairman’s comments ring true. If this is a baseless effort at revenge or pure intimidation, it’s a disgrace (we should note that President Trump denies any involvement with the DOJ’s action).

 

The Fed’s independence is based on convention, not law. The central bank is a creation of Congress. What Congress can make, Congress can remake or unmake, and the existence of a quasi-executive agency not directly controlled by the executive branch is a constitutional anomaly. But it can hardly be seriously maintained that Trump is engaged in a work of constitutional house-cleaning. And as a practical matter, Fed independence has not come under sustained assault even by presidents upset by its decisions.

 

Fed appointments are staggered, and they are for a single, 14-year term. A governor can only be removed for “cause,” a word that will be examined by the Supreme Court as it considers the legality of the president’s attempt to remove Fed Governor Lisa Cook for alleged mortgage fraud. Whatever the Court might decide in that case, disagreements over policy are not “cause” as ordinarily construed.

 

Since 1977, the task given by Congress to the Fed has been to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates” — the “dual-mandate,” so-called because fulfilling the interest rate objective is regarded as the natural consequence of working toward “maximum” employment (an undefined term) and “stable prices,” an objective currently defined as “two percent over the longer term.” The latter objective is not particularly rigorous, but it is not yet within reach, hence the reluctance of the Fed to cut rates as deeply and as quickly as the president would like, and hence the current dispute. While the dual mandate may not itself be the most coherent guidance, it is the law, and only Congress can change it.

 

As history regularly reminds us, the Fed’s judgment is far from perfect and, despite agreements and convention to the contrary, far from immune from political pressure. Nevertheless, immunity remains an important principle. To challenge it as crudely as the administration now appears to be doing — tactics more reminiscent of some nations to our south than of the country now celebrating its semiquincentennial — is profoundly misguided and may well prove to be profoundly destructive. The steep interest rate cuts that Trump seeks would be highly inflationary; and even if they would not, the loss of confidence in the Fed’s ability to tamp down inflation regardless of political pressure would tend to raise inflation by itself. Market confidence may be a matter of perception, but it is no less a reality. And that’s not to reckon with what future presidents could do with the Fed. Imagine if believers in modern monetary theory were in charge and operating by these rules.

 

As it is, there is a danger that Trump may have succeeded in his longer-term objective. Other board members will now be weighing what might happen if they displease the president. Prospective board members may be making the same calculation.

 

Regardless of the state of the economy, the constituency for higher interest rates is rarely a large one. There will always be plenty of people agitating for a lower cost of money, and their voices can sound very loudly indeed at inconvenient moments in the electoral cycle. The greater the degree of political control over monetary policy, particularly in a democracy, the greater the danger that that currency will be debased. Investors know this, and it (partly) helps explain the relative weakness of the dollar (and strength in gold and silver) over the past year. Sure enough, the price of gold and silver rose in the wake of Powell’s comments, and the dollar fell.

 

Undoing what has been done will not be easy, but, when it comes to confirming Trump’s choice of Powell’s successor and any other new Fed governor, the Senate must take as hard a line as it realistically can in support of maintaining the central bank’s ability to exercise independent judgment. For his part, Mr. Powell could help in this effort by sticking around on the Fed’s board (his replacement would be nominated by the president) until his term there ends in 2028. Standing down from the board, too, when he ceases to be chairman would be the conventional thing to do, but convention clearly is out the window.