The Dramatic Martyrdom of the Fed Chairman
Jerome Powell has decided he’s part of a confrontation with the Trump administration, so he is taking a stand.
In an unprecedented move, Powell released a video Sunday night accusing the Trump administration of leveraging the Justice Department to pressure the central bank. This was shared with the Fed on Friday. A grand jury subpoena has been issued, along with threats of criminal charges. This situation revolves around renovations at the Federal Reserve’s headquarters in Washington, D.C., and testimonies given to a Senate committee last year. However, Powell believes these inquiries are just “pretexts” aiming to undermine the Fed’s independence.
It’s a big deal. Powell doesn’t just criticize the Trump administration; he’s claiming they’re trying to compromise the Fed’s autonomy and misusing the Justice Department for that purpose. The message was put out in a rather striking way—a two-minute video released before Asian markets opened. I wonder if that was deliberate, but it certainly seems like an effective way to shake things up in financial markets. Powell chose the timing and format to ensure swift dissemination and denied the White House a chance to manage the fallout.
However, if the idea was to incite a market crash, that didn’t happen. In futures markets, the Dow Jones Industrial Average and S&P 500 dipped just 0.5%, and even that small decline vanished by noon on Monday. Investors appeared unfazed by the alleged threat to the Federal Reserve’s autonomy. The S&P even closed at a new high on Monday.
Anxiety Over Verdict Against Trump
Commentators and mainstream media jumped to conclusions, quickly assuming Powell’s accusations were valid and passing judgment on Trump for attempting to gain control over monetary policy. It’s a familiar pattern—verdict first, evidence later when it comes to Trump. Nevertheless, the market seemed to question the solidity of Powell’s claims. I mean, if Trump wanted to push for Powell’s resignation, what would be the reason? Powell’s term is set to end in five months, and he has only a few meetings left as chairman of the Federal Open Market Committee (FOMC). Why push someone out who’s already leaving?
While Powell might remain a governor until 2028, the inquiry from the Justice Department seems more likely to inspire him to stay rather than resign. This has morphed into a personal struggle for Powell, representing an attack on his integrity and on the Fed’s autonomy. Even if he wasn’t planning to hang around before, he probably is now.
Using the Justice Department like this could risk alienating members of the FOMC who are fond of Powell and have worked with him for years. If, by some means, the investigation managed to force Powell out—maybe due to an indictment giving the president the grounds to fire him—the next chairman would likely face a Monetary Policy Committee that’s not keen on cooperating with the administration’s economic agenda.
Plus, there’s the Senate to consider. Trump will need Senate approval for any replacement for Powell. The Federal Reserve Act doesn’t allow for appointing an acting chair without that confirmation. So if Trump’s nominee doesn’t get approved, the position stays empty. According to the Federal Reserve Act, if the chair is “absent,” leadership defaults to the vice chair. That role is filled by Philip Jefferson, a Biden appointee. It seems quite a challenge to orchestrate Powell’s departure just to facilitate Jefferson taking over.
Some have suggested the Fed board might opt to keep Powell in place until a replacement is confirmed. When Powell’s first term as chair ended in February 2022 during Biden’s administration, he was selected by the Fed’s Board of Governors to continue as chair in an interim capacity, where he waited for confirmation many months later. This kind of scenario has happened before when there’s been a gap between chairmanships. So, it’s not without precedent.
However, Biden had already expressed his intention to reappoint Powell back in 2022, so keeping him on while his term technically runs out soon could lead to legal battles, embroiling the Fed further in a political conflict with Trump. The Federal Reserve Act only allows for an interim chair when both the chair and the vice chair are absent.
The risk of a prolonged vacancy at the Fed isn’t just theoretical. Senator Thom Tillis (R-NC) quickly reacted to Powell’s video, stating he would block any nominee until the inquiry is resolved. Senator Lisa Murkowski (R-AK) echoed this, saying she would do the same, calling the administration’s investigation clearly an attempt at intimidation.
On a formal level, this is the Senate’s constitutional and statutory duty. Unlike most laws, the Federal Reserve Act doesn’t define terms for removing a Fed director. In fact, it doesn’t really protect the chair from removal; the main hurdle is ensuring the Senate believes the removal is warranted to confirm a new nominee.
Yet, the Senate’s capacity to keep the Fed chair position vacant might actually be limited. A 1978 memo from the Office of the General Counsel contended that the vice chairman stepping into the chair role during a “temporary absence” of the chair doesn’t necessarily cover a permanent vacancy when the chair’s term ends. This lack of clarity about succession could lead to complications. If that’s accurate, the blockage by Tillis and Murkowski could give Trump some leeway, but the Acting Chair’s authority will hinge on maintaining cooperation among the rest of the board and FOMC.
Trump himself denies any involvement in the investigation. In a recent NBC News interview, he mentioned he wasn’t even aware of the subpoena and insisted his disagreements with Powell regarding interest rates have no connection to any criminal investigation. Under Powell’s leadership, the Fed began lowering interest rates in September, aligning with what Trump has been advocating all year. It seems unwise to oppose Trump now, especially when he has several meetings where he’s asking for further cuts.
Is Mr. Powell a “Rogue Priest”?
So what’s really going on? There are a couple of theories. First, it might be that ardent Trump supporters, possibly including some administration officials, pressured the Justice Department to target Powell. A Bloomberg report citing unnamed sources suggested that Federal Housing Finance Agency Commissioner Bill Pruitt was a major influence behind the decision to subpoena Powell. He had previously raised issues about the Fed and referred potential misconduct to the Justice Department.
This situation inevitably brings to mind the infamous assassination of Thomas Becket, who became Archbishop of Canterbury after a dispute with Henry II regarding the powers of the Church versus the Crown. In frustration, Henry famously asked, “Will anyone rid me of this turbulent priest?” It’s said that four knights took that as a command and murdered Becket, causing a major scandal throughout Christian Europe. He was quickly recognized as a martyr, forcing Henry to publicly atone.
Shakespeare’s play *Richard II* presents a similar scenario. The story begins after Thomas of Woodstock, Duke of Gloucester, mysteriously dies after Richard II went after him for opposing his policies. Richard never explicitly ordered Gloucester’s murder but expressed his discontent in such a way that it became a catalyst for his supporters to act. This chain of events eventually leads to Richard losing both his crown and his life.
These cautionary tales warn us of situations where subordinates misinterpret a leader’s vague dissatisfaction as a directive to act.
Another, often overlooked, possibility is that the Justice Department may be pursuing legitimate legal grounds. Perhaps there’s reason to believe Powell did something illegal, like committing perjury during Senate testimony. What is perceived as revenge could actually be the rule of law in action. It’s a bit premature, it seems, to label Powell as a modern martyr akin to Becket or Gloucester.
Powell’s video essentially serves as a self-canonization, accusing the Trump administration of heresy by undermining central bank independence. But we shouldn’t automatically regard Powell’s statements as absolute truth. In fact, on Monday, financial markets appeared to dismiss any notion that Trump posed a real threat to the Federal Reserve’s autonomy.
