Fed chair faces DOJ investigation, calls to lower interest rates
The U.S. Federal Reserve (Fed) President Jerome Powell has come under pressure from President Trump for the Fed’s refusal to lower interest rates, despite the president’s demands. The Fed was subpoenaed to present in front of a grand jury by the Department of Justice (DOJ) on January 9. The DOJ investigation, which was approved by Judge Jeanine Pirro in November, will determine whether or not Powell is guilty of misleading Congress during his testimony regarding ongoing renovations of the Federal Reserve headquarters.
The Fed is responsible for maintaining steady economic growth through monetary policy. In part, this policy consists of setting interest rates, which impact consumer spending capacity. At lower interest rates, it becomes cheaper to borrow money, thereby increasing spending and output. The Fed is meant to carry out this mandate objectively in order to best serve American interests.
Trump has criticized raising interest rates for hindering economic growth. In a speech given to members of the Detroit Economic Club on January 13, Trump remarked, “In the old days, when you had good numbers, interest rates would go down . . . [and] the market would go through the roof.” Trump compared this to current fiscal policy, saying, “Today, if you announce great numbers, they raise interest rates to try and kill it.”
Powell, whom Trump appointed as chair of the Fed during his first term, has resisted Trump’s calls to lower rates. In a statement released on January 11, Powell stated his commitment to this position, saying, “In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment.”
“Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people,” he concluded.
The statement was prompted by a newly opened DOJ investigation into Powell, marking the first time the DOJ has investigated the chairman of the Fed. According to Powell, the Federal Reserve was served grand jury subpoenas regarding his congressional testimony on the renovation of Fed buildings in June. These renovations are currently 700 million dollars over budget. The investigation seeks to determine if Powell’s testimony regarding the renovations was intentionally misleading. President Trump has denied knowledge of this investigation.
One sophomore economics major shared his thoughts on the investigation anonymously with the Rover. While recognizing the importance of investigating potential fraud, he was suspicious of the investigation’s motives, saying, “Given the disagreements Powell and Trump have had in the past, I do think there are probably political motivations for the investigation, and I also don’t like that the president could be doing this out of an ego-filled quarrel.”
He continued, “The Fed’s dual mandate is very clear and helps keep the economy on track. Trump disagrees with the way Powell is handling this duty, but his term is nearly over. This investigation seems ridiculous.”
Powell addressed the DOJ investigation in his January statement, saying, “I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.”
Jason Reed, Professor of Economics, agreed with Powell that the investigation is trivial, telling the Rover, “The Federal Reserve is mandated by Congress to create long term maximum employment and stable prices. Those mandates may be orthogonal to a President’s fiscal policies and priorities, but that doesn’t mean the Federal Reserve should yield to them.”
Reed also acknowledged the reasoning behind Trump’s push for lower rates. “It is true that when fiscal and monetary policy work in tandem, the economic effects can be more pronounced, but the Fed should always strive to maintain its stated mandate, even in the face of fiscal and political pressure,” he explained.
Nolan Fletes, senior economics major and co-president of Notre Dame’s Federal and Fiscal Challenge team, added nuance to the dichotomy of Trump and Powell, citing the long term implications of the Fed’s policies. Fletes explained to the Rover, “Independence of monetary policy is powerful because it’s a different perspective than what we see in a democracy. A democracy, especially the one we have now, is very short-sighted . . . and so having a different perspective that is looking towards the long term is important.”
However, Fletes recognized that a central bank with an independent mandate is not required, pointing to the United Kingdom as an example of an alternative banking system: “I think one reason why America is more attractive for capital is because of our independent monetary authority, but that independence also has drawbacks and is less capable of acting in times of crisis or change.”
Powell’s term as Fed chair is set to end in May. Trump has begun interviewing candidates for the position including Christopher Waller, Kevin Warsh, Kevin Hassett, and Rick Rieder, the chief investment officer at BlackRock.
Professor Reed called Rick Rieder an “outsider” candidate, citing his experience at BlackRock: “[Rieder] shares views similar to Trump’s, who would like to see lower rates closer to 3 percent rather than the current effective federal funds rate of 3.65 percent.”
Fletes also commented on Rieder, saying, “If Trump opts to elect someone like Rick Reider as the next Fed chair, I’d be excited to see his policies and vision for monetary responsibility, but until then Powell has the reins.”
Luke Woodyard and Andrew Blake are newly appointed politics editors. They hope there are no DOJ investigations in their futures. Email lwoodyar@nd.edu or ablake5@nd.edu with any potential evidence.
Photo Credit: Flickr
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