The Fight Over Fed Independence Just Got Taken To a Whole New Level
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of Odd Lots examines the unprecedented escalation in tensions between the Trump administration and Federal Reserve Chairman Jerome Powell, who was served with a DOJ subpoena potentially leading to criminal charges. (02:38) The charges relate to Powell's congressional testimony about Fed building renovations, but Powell himself characterized this as retaliation for the administration's displeasure with interest rate policy. (03:38) Host Joe Wiesenthal and Tracy Alloway speak with Columbia Law Professor Lev Menand about what this means for Fed independence and broader governmental intimidation tactics.
- Main themes include the weaponization of criminal proceedings against government officials, the broader implications for Fed independence beyond just removal powers, and how this represents an attempt to cow the entire federal workforce into submission through intimidation
Speakers
Lev Menand
Professor at Columbia Law School and author of "Fed Unbound." Menand is a leading expert on Federal Reserve governance, central banking law, and the intersection of monetary policy with bank regulation. He regularly appears on financial media to discuss Fed independence and central bank policy issues.
Joe Wiesenthal
Co-host of Bloomberg's Odd Lots podcast and editor at Bloomberg. Wiesenthal covers financial markets, economic policy, and monetary issues with a focus on connecting market movements to policy developments.
Tracy Alloway
Co-host of Bloomberg's Odd Lots podcast and senior reporter at Bloomberg. Alloway covers financial markets, central banking, and economic policy with expertise in connecting complex financial concepts to broader economic trends.
Key Takeaways
Criminal Proceedings Represent Unprecedented Government Intimidation
This DOJ subpoena against Powell marks the first time in U.S. history that a sitting Fed chair has faced potential criminal charges. (05:44) As Menand explains, this goes beyond typical removal disputes and threatens Powell's liberty, not just his job. The precedent this sets is deeply concerning for anyone considering government service, as it demonstrates the administration's willingness to use criminal prosecution as a tool of political intimidation. This creates a chilling effect that extends far beyond the Federal Reserve to all government agencies and officials who might resist presidential directives.
Fed Independence Under Attack Through Multiple Legal Channels
The Trump administration is pursuing Fed control through various simultaneous legal strategies. (07:38) Beyond the Powell subpoena, there's the pending Supreme Court case regarding Lisa Cook's attempted firing, and broader constitutional challenges to for-cause removal protections. This multi-pronged approach suggests a coordinated effort to dismantle institutional independence across government agencies. The strategy appears designed to create a four-vote majority on the Fed board while intimidating remaining officials into compliance.
Personal Financial Burden Creates Systematic Vulnerability
Government officials must pay their own legal fees when defending against criminal charges or removal proceedings, creating a significant barrier to resistance. (20:23) This financial pressure, combined with law firms' reluctance to represent administration targets due to fear of retaliation, systematically disadvantages officials who might otherwise fight back. The example of Governor Kogler's abrupt resignation amid investigation demonstrates how this pressure leads to preemptive capitulation, allowing the administration to achieve its goals without formal proceedings.
Monetary Policy and Bank Regulation Are Inseparable Functions
Menand emphasizes that attempts to separate Fed monetary policy from its regulatory functions are "fanciful" because money supply is created by investor-owned banks like JPMorgan and Bank of America. (28:58) Bank regulatory policies - capital requirements, liquidity rules, supervisory expectations - directly affect these banks' willingness to expand or contract lending, which drives money supply and inflation. Any attempt to split these functions would create competing authorities with conflicting objectives, potentially making monetary policy less effective rather than more independent.
Market Complacency May Mask Dangerous Regime Change Risk
Despite the ongoing attacks on Fed independence, markets have shown relatively muted reactions, with bond yields and inflation expectations remaining stable. (24:56) Menand warns this resembles the gradual-then-sudden nature of bankruptcy - markets may not price in risks until a critical tipping point is reached. The danger lies not just in potential inflation targeting changes, but in the weaponization of the Fed's payments system and financial infrastructure oversight powers, which could have severe consequences without necessarily moving dollar valuations or bond yields.
Statistics & Facts
- Jerome Powell's term as Fed Chair runs until May 2026, but his term as a Fed Governor extends until 2028, giving him the option to remain on the board even after stepping down as chair. (10:29) This timing is crucial because it affects Trump's ability to install his preferred appointees and achieve a majority on the seven-member Fed board.
- Fed Governors serve staggered 14-year terms designed to prevent any single president from quickly taking control of the board, with only one seat typically turning over every two years. (11:14) However, early resignations can allow presidents to circumvent this protection and install their appointees ahead of schedule.
- Polymarket betting odds on Jerome Powell leaving the Fed board by the end of 2026 dropped from the mid-80s to mid-70s following the subpoena news, suggesting market participants believe Powell may now be more likely to stay and fight rather than step down quietly. (13:45)
