When this particular week in Washington politics is parsed by the historians, they may conclude that whatever the merits and faults of Federal Reserve chairman Jerome Powell, he at least did not lack moral backbone.
On Wednesday, US president Donald Trump resumed his on-off attacks on Powell, who has grossly displeased him by refusing to accede to his loudening request to lower the interest rates. It had been reported that during a Tuesday meeting with Republican lawmakers, Trump had brandished a letter proposing to fire Powell and canvassed for opinion. Early on Wednesday, stock prices swooned with the result.
“No, I talked to them about the concept of firing him,” Trump said on Wednesday, evading the presence of a letter as prop.
“I said: ‘what do you think?’ Almost every one of them said I should. But I’m more conservative than they are.”
READ MORE
With the immediate threat of a firing receding, the stock indexes began to hum again. Beside Trump, the crown prince of Bahrain, Salman bin Hamad Al Khalifa, sat placidly in his Oval Office chair and admired the abundance of decorative gold flourishes and curios as his host held court.
But even as Trump said that firing his Federal Reserve chairman was not in his immediate plans, he left the door ajar by referencing the eye-watering costs of the renovation of the Marriner S. Eccles Federal Reserve building in Washington.
“I don’t rule out anything,” Trump replied in relation to firing Powell.
“But I think it’s highly unlikely – unless he has to leave for fraud! I mean it is possible there is fraud involved with the $2.5, $2.7 billion renovation. It’s a renovation! How do you spend $2.7 billion? I think he is already under investigation. He has spent far more money than he was supposed to on rebuilding. I didn’t see him as the kind of guy who wants to have rooftop parks on buildings. I think he’s got some problems.”
Powell has become a bee in Trump’s bonnet and when the subject was raised by the White House press pool, the president couldn’t resist another recitation of his complaint.
“He’s always been too late. Hence his nickname ‘Too Late’. He should have cut interest rates a long time ago. Europe has cut ‘em 10 times in the short period of time that we have cut them none. The only time he cut them was just before the election to try and help Kamala, Biden – whoever the hell it was. Obviously that didn’t work. I think he does a terrible job. He’s costing us a lot of money. And we fight through it.
“The country is becoming so successful that it doesn’t really affect us. But it does when people want to get a mortgage and buy a house. He’s a terrible Fed chair. I’m surprised he was appointed. I’m surprised frankly that Biden put him in, and extended him. But they did. No. We are not planning on doing anything.
“He is doing a little renovation for $2.5 billion of the Fed building. A renovation and close to a $900 million cost over-run. And it’s a shame. But the biggest cost over-run is for interest rates. Because we should be paying three points lower and we would save a trillion dollars in interest. We had the worst inflation in history under Biden and now we have almost none.”
If Trump glided over the “surprised frankly” observation, it was with good reason. Powell is, historically, a Republican and was appointed as chair of the Federal Reserve, when he succeeded Janet Yellen, by president Trump himself during his first term. That announcement was significant in that it marked the first time in decades that a president had not reappointed a sitting chair to a second term. Speaking then, he predicted that Powell offered “strong, sound and steady leadership”.
Times have changed. In late June, Powell appeared before the Senate banking committee for a sitting that soon settled into a hostile grilling from Republican senators. Among the issues under discussion was that ongoing renovation of the Federal building which, senator Tim Scott outlined, includes lavish plans for rooftop garden terraces, water features and new elevators to drop members off at the VIP dining suite.
“We can all agree that updating ageing infrastructure is a legitimate need,” Scott said in his opening remarks.
“But when senior citizens can barely afford Formica countertops, it sends the wrong message to spend public money on luxury upgrades that feel more like they belong in the Palace of Versailles than a public institution. At the same time, the Fed’s role as an independent, apolitical institution is being questioned. The central bank joined a global organisation to “green” the financial system under the leadership of president Biden, only to exit it as soon as president Trump took office. That’s not neutrality. That’s drifting.”
Powell was trenchant in his reply.
“Some of that is just flatly misleading. It is the same elevator – it has been there since the building was built. That is a mischaracterisation. And some of those [changes] are no longer in the plans.”
The Federal Reserve website points out that the project involves “a complete overhaul and modernisation that preserves two historic buildings” that have not been updated since the 1930s. Essential work includes the removal of asbestos and lead contamination. But given that “waste, fraud and abuse” has become the mantra of this administration, the spiralling costs leave Powell vulnerable. It was reported that he ordered an internal review of the costs after his Capitol Hill interrogation.
The easiest way for Powell make this go away would be to follow the lead of the representatives and senators on Capitol Hill who groused about the recent budget Bill and then voted to pass it into law anyway. But Powell has been quietly adamant that the time is not yet right to lower rates. His chairmanship has been liable to the criticism that the Fed was too complacent or sluggish in its response to the post-Covid inflationary cycle.
The June Consumer Price Index rose to 2.7 per cent: not an alarming escalation, but the highest since February and a stubborn counterpoint to Trump’s declaration that the inflationary spiral caused by the Biden administration policies has ended.
The August 1st tariff deadline is nearing and with it the prospect of national and international economic upheaval. By the end of June, the dollar had experienced the worst start to any year since the economically tumultuous year of 1973.
None of these factors has convinced Powell, whose term is due to end next May, that the time is quite right to move from the current rate band of 4.25-4.50 per cent. The criticisms, including those from potential successors – Trump economic adviser Kevin Hassett, former Fed board of governors member Kevin Warsh and treasury secretary Scott Bessent – have added fuel to the flames Trump is applying to the feet of his chairman.
Against that, the editorial board of the Wall Street Journal on Wednesday penned an opinion warning against the dangers of “canning” Powell, whatever his errors.
Veteran Louisiana senator John Kennedy also offered a blunt warning on Wednesday. “If you fire the chairman of the Federal Reserve, you will see the stock market crash. And you will see the bond market crash.”
The one service that Powell is providing for Trump is that the controversy at least distracts some of the attention from the internal Maga crisis of faith over the administration’s failure to release, as promised, the federal files on the investigation into Jeffrey Epstein.
Through the noise, Powell has stood firm in a way that illustrates that Trump, to his increasing displeasure, was actually on the money in describing him as “strong, sound and steady” eight years ago.
