Donald Trump once said he values loyalty “above everything else…more than brains, more than drive and more than energy.” If you’re wondering how he responds to perceived disloyalty, he’s also previously said “I love getting even with people.”
With these two statements in mind, the Trump administration’s dramatic escalation of its war against the Chairman of the Federal Reserve, Jerome Powell, becomes easier to understand. That said, the targeting of the Fed chair with criminal proceedings is no less extraordinary just because it conforms to the Trump playbook.
As Republican Senator Thom Tillis said yesterday: “If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none.”
Trump’s hostility towards Powell is no secret – he’s previously called the top central banker “a numbskull” – and his frustration with the direction of US monetary policy is also well known. But there’s no doubt that the levying of criminal charges – to do with evidence Powell gave to Congress on the redevelopment of the Federal Reserve’s HQ – constitutes a worrying assault on the Fed chair and so, therefore, on the independence of the central bank itself.
The move echoes previous efforts by Trump to remove Lisa Cook, one of the Fed’s governors, in a case that was blocked by federal courts and which will be heard in the Supreme Court later this month.
Weaponising the criminal justice system
Beyond a modest move toward safe haven assets, the market reaction was muted; what movement there was in US equities was largely down to Trump’s announcement that he wants to cap the rates charged on credit cards. It’s also baked in that Powell, whose term ends in May, will be replaced by a figure more to the President’s liking.
Nevertheless, the independence of the US Federal Reserve is vital to global financial stability and any move that undermines it or indicates that it will be less independent in the future should be taken extremely seriously.
Up to now, Trump had limited his attacks on Powell to name calling and angry social posts, but weaponising the legal system to underline his point is unprecedented and has sparked justifiable alarm among economists and investors, even if that fear hasn’t yet shown up in the markets.