Jerome Powell, the chair of the Federal Reserve, has taken a beating. His $2.5 billion recent renovation boondoggle of the central bank’s headquarters in Washington has been controversial. As we reported last July, Powell’s letter to U.S. senators described the massive, complex costs related to the renovation process. His explanation undermined the Trump administration’s argument that he had deceived Congress about the size of the project. The U.S. Department of Justice is still under the hood of a criminal investigation into Powell. This investigation is looking at claims of “misuse of taxpayer dollars” related to the project.
The tensions escalated as Donald Trump, who appointed Powell in 2018, indicated plans to announce a replacement for him within “the next few weeks.” Trump has repeatedly attacked Powell personally for not cutting interest rates fast enough. There’s a danger the Fed chair will be pilloried for this non-failure, he warns.
“I think it’s fine what I’m doing. And we have a bad Fed person.” – Donald Trump
Furthermore, Trump took issue with Jamie Dimon, CEO of JP Morgan, after Dimon expressed support for Powell’s leadership and emphasized the importance of Fed independence. Trump suggested Dimon’s opinion was based on his desire for rising interest rates, saying,
“We should have lower rates. Jamie Dimon probably wants higher rates, maybe he makes more money that way.”
In response to Trump’s comments, Dimon reiterated his respect for Powell and highlighted a belief in the independence of the Federal Reserve. He stated,
“Everyone we know believes in Fed independence.”
The Federal Reserve’s renovation project has added a new twist to the already fraught Trump-Powell relationship. This new wrinkle adds significant complexity, ensuring further friction in their relationship. Indeed, critics have noted that the administration’s attacks on Powell are damaging the rarely contested norm of central bank independence. Robin Vince, president and CEO of BNY Mellon and another leading voice from the financial community, identified a key challenge. He argued that independent central banks are crucial for formulating monetary interventions in service of the nation’s long-term best interests.
The investigation is ongoing, and Trump has clearly made his displeasure known over Powell’s inability to perform with the necessary panache. This placement has important consequences for U.S. monetary policy. The tension between the White House and the Federal Reserve reflects broader concerns about governance and fiscal responsibility amid ongoing economic challenges.