Trump’s attack on the Fed should galvanise the GOP

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The writer is a contributing editor for the Financial Times and director of economic policy studies at the American Enterprise Institute

Thom Tillis, a Republican on the Senate Banking Committee, showed his colleagues the appropriate response to the Justice Department’s investigation into Federal Reserve Chair Jay Powell when he promised to oppose the confirmation of Powell’s successor until the legal matter is “fully resolved.”

Powell faces a criminal investigation over testimony he gave before the Banking Committee regarding the renovation of the central bank’s headquarters. This investigation is clearly a weak pretext to pressure the Fed to lower interest rates in accordance with the president’s wishes, and to intimidate current and future members of the rate-setting committee into submitting to Trump.

There is a direct line leading from Powell’s potential impeachment to the inflation rate. If investors and businesses believe that the central bank makes decisions about interest rates based on the president’s preferences, they will question the Fed’s willingness to raise interest rates when the economy is generating inflationary pressures. Their concerns that inflation may remain persistently above the Fed’s 2 percent target in the future would put pressure on prices higher today.

Increases in expected future inflation would also put upward pressure on longer-term interest rates. Longer-term interest rates may also rise if Powell is impeached due to concerns about the stability and integrity of US institutions.

congress recognized that low and stable inflation could best be managed by a central bank independent of the political desires of elected officials to stimulate the economy. Because of this long-standing bipartisan consensus, the Senate should exercise its constitutional role of approving Fed nominations more aggressively than it does for the president’s Cabinet nominees.

It is encouraging that other Republican senators — including some who have not stepped down, like Tillis — have spoken out about Powell’s investigation. “We need this like we need a hole in the head,” John Kennedy, a Republican from Louisiana and a member of the Banking Committee, said Monday. John Thune, Senate Majority Leader, called for “the matter to be resolved quickly” and affirmed his support for the independence of the Federal Reserve.

Alaska’s Lisa Murkowski went further, issuing a statement that Tillis is “right to block any Fed nominee until this issue is resolved.” Powell’s term as head of the fund ends next May, but he will remain in his position until his successor is confirmed.

These public statements were promising. The world has just learned how far those around Trump are willing to go to take over the Fed. Once the legal threat facing Powell is resolved, this episode makes it even more important for the Senate to ensure that Powell’s eventual successor is widely viewed as independent.

There are some broader lessons from last week. On the one hand, the administration’s use of lawfare is rapidly diminishing among Republicans. Thune captured the sentiment on Capitol Hill in his comments last Tuesday: “If the Justice Department is going for something,” he said with a hint of boredom, “I hope they have smoking gun.”

Refusing to confirm Powell’s successor until this investigation is dropped may make Trump think twice before using the justice system as a weapon in the future.

And the madness of unorganized activity practiced by the president and those around him is beginning to wear thin. To name just a few examples, Trump has teamed up with left-wing progressive Senator Elizabeth Warren in seeking to cap interest rates on credit cards, announce wildly swinging tariffs, and opportunistically shake up private businesses, along with tough immigration measures and an unclear plan for Venezuela.

I’ve been surprised over the past few months by how common it is to hear Republicans in private conversations express deep frustration with the White House — and with the president himself — than at most points in Trump’s first term before the pandemic. When the 2028 GOP presidential campaign gains momentum later this year, I expect this trend to accelerate.

It may not have been King Henry II who ordered the assassination of Thomas Becket, but those around the king were taking their cues from him when they murdered the archbishop in Canterbury Cathedral. If Trump does not direct the Justice Department to open this investigation, he should reevaluate his signals and the people around him.

When the dust settles on this horrific episode, the Senate can emerge stronger by asserting itself and imposing an end to the Powell investigation — and by ensuring that Powell’s successor is independent of the preferences, whims, and incursions of an overactive and unchecked president.