Trump’s legal attack on Powell underscores his aim for full control over Fed

WASHINGTON — The Department of Justice’s threat to criminally indict Federal Reserve Chair Jerome Powell has set up a tense showdown between the White House and the U.S. central bank, with Powell saying the subpoenas that arrived on Friday are intended to force him to follow President Donald Trump’s orders.

The subpoenas apply to the cost of renovating Fed buildings, including its marble-clad headquarters in Washington, DC, but they are more fundamentally about the fate of the Fed’s independence, how power is distributed within the federal government, and how it will effect the U.S. economy.

A pair of Republicans senators have already expressed their unhappiness with the subpoenas and the possibility of the Fed losing its political independence. Former Fed chairs and leading economists on Monday put together a letter to outline the risks to the wider economy from the Trump administration’s actions – which could ultimately shape everyday people’s ability to get jobs, mortgage and auto loans.

Trump has for the past year sought to pressure Powell into having the Fed slash its benchmark interest rates – a move that reflects a fundamental break over whether inflation still poses any risk to the U.S. economy.

Powell maintains that inflation is still elevated in the aftermath of Trump’s tariffs and has moved cautiously, whereas Trump claims that inflation is no longer a worry and rates should be dramatically slashed.

“I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment,” Powell said in a Sunday night video disclosing the subpoenas. “Public service sometimes requires standing firm in the face of threats.”

Powell’s term as chair ends in May, but the latest attack from the White House likely reflects a concern that Powell could choose to remain on the Fed’s board until his separate term as governor ends in January 2028. If he took that step, the Trump administration would be deprived of the chance to fill another seat on the board.

Asked on Monday by reporters if Powell planned to remain a Fed governor, Kevin Hassett, director of the White House National Economic Council and a leading candidate to become Fed chair, said he was unaware of Powell’s plans.

“I’ve not talked to Jay about that,” Hassett said.

On Monday, stock markets fell in reaction to Powell’s statement Sunday night that the DOJ had served the Fed with subpoenas related to June testimony he gave on the central bank’s $2.5 billion building renovation.

Powell, jettisoning the cautious approach he has taken since Trump began attacking him last year for not cutting rates sharply enough, said the subpoenas were a “pretext” to force the Fed to cut its key short-term interest rate.

Sen. Kevin Cramer, a Republican from North Dakota, a frequent Powell critic, said Monday that he does not think that the Fed chair is “a criminal” and said he hopes that “this criminal investigation can be put to rest quickly,” according to CNBC.

A bipartisan group of former Fed chairs and top economists said Monday that the White House’s legal actions are “an unprecedented attempt to use prosecutorial attacks to undermine” the central bank’s independence.

“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” the statement said. “It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.”

The statement was signed by former Fed chairs Ben Bernanke, Janet Yellen, and Alan Greenspan, as well as former Treasury Secretaries Henry Paulson and Robert Rubin.

Still, the action had been building for some time and Trump relentlessly criticized and belittled Powell, attempting to blame him for some of the discontent over the economy that followed the president’s own tariff announcements.

Trump appeared to preview the shocking news of the subpoenas at a December 29 news conference. The president said his administration would “probably” sue Powell for “gross incompetence” on the cost of renovations, calling it the “highest price of construction per square foot in the history of the world.”

“He’s just a very incompetent man,” Trump said. “But we’re going to probably bring a lawsuit against him.”