DOJ Probe of Powell Roils Markets, Raises Fed Independence Fears (Full Transcript)

[00:00:00] Speaker 1: The U.S. Justice Department has opened a criminal investigation into the Federal Reserve and its chairman, Jerome Powell. It's over the Fed's $2.5 billion renovation of its Washington D.C. HQ. A Justice Department spokesperson wouldn't comment specifically on the investigation, but they told CNN the attorney general wants to, quote, "...prioritize investigating any abuse of taxpayer dollars." Powell testified before Congress in June, saying the renovation involved various agencies and that the costs had changed over time. He says this investigation is just the latest pressure tactic in an ongoing struggle with the White House.

[00:00:39] Speaker 2: On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas threatening a criminal indictment related to my testimony before the Senate Banking Committee last June. That testimony concerned, in part, a multiyear project to renovate historic Federal Reserve office buildings. 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. This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role. The Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether, instead, monetary policy will be directed by political pressure or intimidation. I have served at the Federal Reserve under four Administrations-Republicans and Democrats alike. 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. Thank you.

[00:02:31] Speaker 3: We're thinking about bringing a gross incompetence, what's called gross incompetence lawsuit. It's gross incompetence against Powell. I'd love to fire him, but we're so close, you know, maybe I still might.

[00:02:46] Speaker 4: So weeks ago, the President was threatening to sue the Federal Reserve Chairman Jerome Powell for gross incompetence. Now it seems the Justice Department is going further than that. Federal prosecutors opened a criminal probe into the Federal Reserve Chairman over the $2.5 billion renovation project at the Fed headquarters building in D.C., a project that the President actually toured with Powell back in July. Now in a taped statement on Sunday, the Chairman says this probe has nothing to do with a building. Group chat is back. I've got to say, the markets did not love this. When we look at the Wall Street Journal, they noted pretty quickly that Dow futures fell, and also there was a fleeing to parts of the market like bonds and things like that. The things that show we believe in the U.S., people said, we're out of here. I want to talk to you about the perception of this, because now this is a war of words.

[00:03:42] Speaker 5: Yes. So the Wall Street reaction is because they want consistency, and any time you're threatening to fire the Fed chair, potentially bring in, you know, the rumor would be Kevin Hassett, who's President Trump's economic advisor, who clearly would be setting a policy based off of his relationship with Donald Trump. That's going to worry big business, because they can't necessarily do forecasts. They can't anticipate sales unless they have a clear understanding of where the interest rates are headed. The other thing I'd say that's sort of rattling a lot of Wall Street right now is the housing market. So much of what the Fed does in setting interest rates impacts housing, availability, labor, and so this shakeup is going to have a huge ripple effect until we know what's happening. And just to give folks some deadlines here, you know, Jay Powell's term ends in May, but his directorship ends in 2028. So this is, you know, even if he were to cut his term early as the Fed chair, you'd still have to figure out to what extent he'd be willing to stay on for the next three years.

[00:04:39] Speaker 4: Yeah, and you're raising the same question Reid Hoffman did, CEO, saying, question to all those who said Trump would be better for the economy is attacking the Fed's independence, what you had in mind. This was also unusual in that Powell spoke up, okay, Powell released a video direct to camera where he is saying, I am being threatened because my policy doesn't align with what the president said. What are you guys hearing about how the White House wants to play this?

[00:05:06] Speaker 6: Well, yeah, Powell is definitely making this a fight. And we're reporting today at Bloomberg that some, at least some privately, some Trump advisors have been anxious about this, concerned about how it would impact the bond market and the markets. And also what this means for, as Sarah was talking about, what Powell will do next in, you know, his chairmanship ends, but his seat doesn't, and some people think he might dig in and stay. This could affect Trump's plans for the Fed.

[00:05:33] Speaker 4: I mean, the Fed is definitely preparing and bolstering its defenses. I mean, one of the things I had noticed last week is that the Fed board, including the Trump appointees, unanimously approved the reappointment of all the regional bank presidents. Like, they basically locked in some folks, sort of, in the infrastructure of the place.

[00:05:51] Speaker 7: Right, and it had seemed for a time that the president was going to back off a little bit on Powell because his chairmanship does end in a few months. I mean, and he himself had said, well, you know, he'll still be here, but he won't be running it anymore, and then the president will likely be able to put in a personal ally of his atop of the Fed. But you heard Democrats also last night pushing back on this and saying that this is, you know, not only another assault on the independence of the Federal Reserve, that this is in line with some of the actions we've seen the president take of prosecuting or trying to prosecute through the Department of Justice, his perceived political enemies, as we also saw last week the White House say that they're going to also be installing an assistant attorney general within the White House to look at alleged fraud. So breaking down for the- In other states, so basically. In other states, in other states, right.

[00:06:40] Speaker 6: Not just Democrats. Yeah. It's not just Democrats also who were raising concerns last night. We heard from Senator Tom Tillis, a Republican in the Senate, who was expressing concerns about what this means for the independence of the Fed.

[00:06:51] Speaker 4: Yeah, he was saying on X, I will oppose the confirmation of any nominee for the Fed, including the upcoming Fed chair vacancy, until this legal matter is resolved. So he's kind of saying, go ahead and investigate him, you're not going to get to move much further.

[00:07:06] Speaker 7: Glad you pointed out, though, that he's a retiring senator, because what we have seen this year, as we're talking about some of these divisions of the Republican Party, is more of the retiring senators who are speaking out against things that they don't like that the president's doing.

[00:07:21] Speaker 5: I just want to say quickly, the timing matters here. We've got midterms coming up. I think President Trump was looking to see, would the Fed cut rates ahead of the midterms, which would help him. And now that it seems that they're moving slower than he would like, he wants to get ahead of it politically.

[00:07:33] Speaker 4: All right. We're going to end the segment with this. I want you guys to hear one more thing that Powell had to say about integrity. And this was at the end of his statement.

[00:07:44] Speaker 2: I have served at the Federal Reserve under four administrations, Republicans and Democrats alike. 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.