Powell Makes His Case to The American People

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. Good evening. Federal Reserve Chair Jerome Powell issued an extraordinary statement on Sunday night. The Fed posted a video of Powell, reading it in full. 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 multi-year project to renovate historic Federal Reserve office buildings. These developments represent an extreme escalation of the pressure campaign that the Trump administration has been putting on the Fed and Chair Jerome Powell for months now.

1:47That's Amira Omokwe. She covers the Federal Reserve for Bloomberg, along with Enda Curran. What you're talking about is effectively threatening the Federal Reserve chair with criminal charges over the costs of a building project, when we know the backstory is that the White House is very unhappy with where interest rates are at, and they want to use this current opportunity to remold the Federal Reserve. Enda and Emera have been tracking how the relationship between Trump and Powell has evolved, or devolved, since Trump first tapped Powell to be the chair of the Federal Reserve in 2017. and they've reported on the president's efforts to try to fire Powell and to reshape the central bank.

2:27Powell's term as Fed chair ends in May, and President Trump says he's close to naming someone to succeed him. In the face of insults and threats, Powell has kept quiet. He's been reluctant and often unwilling to answer reporters' questions about what President Trump has said about him. So his statement on Sunday is a sea change. This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure. Controversy over that renovation and allegations he misled Congress in testimony last summer, those are pretexts, Powell said. 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.

3:20I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, the Department of Justice subpoenas the Federal Reserve, what it means for one of the most important financial institutions in the world, for its leader, Jerome Powell, and for the White House, and where things could go from here.

3:41In Federal Reserve Chair Jerome Powell's statement about the subpoenas the Department of Justice served the Fed on Friday, Powell said they're part of something bigger. They're a threat to the Fed's longstanding independence. 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. Amira, let's start with this statement and what made it unique or unprecedented. Why in terms of medium and message was the statement so significant? Wow, David, when I read the statement, I had to take, I mean, usually take a minute before you start writing, but I took like an extra minute because I was like, this is truly remarkable that Jay Powell is coming out with both video and text and doing a very direct response to the administration, a very forceful response to the administration.

4:34Usually when Chair Powell is asked about things that President Trump is saying or things that the administration is doing, you can almost predict what he's going to say. It is usually, we at the Fed, we just try to stick to our knitting. We try to stay out of politics. We just want to do a good job for the American people, some version of that. This was so very different than what he usually says in response to attacks and pressure from the administration. He said this issue of the building renovation and what he said to Congress last year about it are essentially pretexts for the administration to go after him and go after the Fed because the Fed has not delivered their preferred policy.

5:12And he basically just came out swinging. And for the Fed, which just likes to kind of take sort of a detached, above-the-fray approach, this is really a departure from how they usually respond to these kinds of situations. And it just shows that they, I think, that they are taking it very seriously. And they do see this as perhaps the realist and most serious threat to the Fed's independence since President Trump returned to office. That was your reaction. What was the reaction of markets to this news, both of the subpoenas and the statement from the Fed chair? So initially we saw, and I think we are still seeing sort of this sell off in sort of the America trade, right?

5:49As Enda and I have written about, markets have tended to take these threats to Fed independence kind of in stride. And it'll be interesting to see if people see this development as something that is more serious than previous developments. You know, even when the president moved to fire Fed Governor Lisa Cook, we didn't really see much of a reaction in markets. And that was really surprising because people were like, whoa, that is unprecedented that the president is trying to remove a Fed governor. I think in terms of attacks on an institution that is at the center of steering the economy, an institution that is meant to be independent of politics and is seen as such, it's pretty unprecedented in its nature, David.

6:30There's no doubt about it. So on paper, it's an argument about classic government costs overrun. But we know the backstory runs much deeper than that. And it didn't take long before we heard from members of the Senate Banking Committee. What have lawmakers said in response to, again, the news of the subpoenas and also what Chair Powell said about them? Well, we've had one interesting intervention in particular, David, with a Republican Party Senator Thillis making the point that he, first of all, views this as a political attack on the Fed. And he has made the point that he will use his role on the relevant committee in the Senate, the banking committee, to block the approval of whoever the White House puts up to be the next Fed chair or any other Federal Reserve appointment in the meantime.

7:14Now, that's very important because it's the first major intervention from the Hill and into the pressure that the White have been putting on the Fed, number one. It comes from the Republican side of things as well. But number two, it means that President Trump and the Treasury Secretary Bestin had been floating, were going to announce a new Fed chair at some point soon over coming weeks. Well, if they go ahead and make that announcement now, the entire Fed-watching world and the rest of the world will say, well, hold on, you don't have the numbers to get that person approved. Amira, at the center of all of this is this renovation project of these two Federal Reserve buildings in Washington.

7:48Just remind us what that issue is and sort of why it's become so controversial. Yes. So this issue really bubbled up over last summer after there were media reports about this two and a half billion dollar renovation of two historic buildings that the Fed is doing at its headquarters in D.C. The media reports kind of characterized the project as very extravagant, that it had all these like fancy design features and things like that. And so when Chair Powell went to do his semiannual testimony before Congress, he was asked about this and he sort of pushed back against the idea that the project is very extravagant.

8:25He did have to answer questions about the fact that the project's costs have risen over time. And that testimony is really at the center of the subpoenas because you had allies of President Trump after the testimony say that Powell was not honest during that testimony. And they called on Congress and the DOJ to investigate whether he had lied to Congress. And evidently, we now have that DOJ investigation. Now, for his part, Powell has said that he was truthful during that testimony. And he's also said that during the entire course of the project that the Fed has aimed to be transparent about its costs and other issues and keep Congress informed.

9:05It was maybe like a month after that congressional testimony that President Trump made that unprecedented trip to Federal Reserve Headquarters of America and got a tour of the construction site. Can you just describe that moment, both the towards of what the president said afterward? There was this kind of memorable exchange between the Fed chair and the president about how big those overruns are. President Trump went over there, walked around, and then he threw out a number about how much the project costs. It looks like it's about$3.1 billion. It went up a little bit or a lot. And you may have seen the memes.

9:40I'm not aware of that. Yeah, it just came out. I haven't heard that from anybody in the Fed. Chair Powell was like, what? Like looking at a piece of paper and it went completely viral because Chair Powell was like, no, actually, that's not how much it costs. You just added in a third building is what that is. That's a third building. It's a building that's being built. No, it was built five years ago. That visit by President Trump to the construction site was actually really surprising because given all the pressure and all the criticisms that he and his administration had been lobbying about the project, you would have expected him to go over there and come out and really be critical.

10:16But he was kind of nice. He was like, oh, you know, it's OK. You know, this is not a reason to fire him. Are there things the chairman can say to you today that would make you back off some of the earlier criticism? Well, I'd love him to lower interest rates. But other than that, what can I tell you? So you left with the impression that maybe the construction project was something that the administration was kind of leaving behind because President Trump really was kind of tame when he visited the site over the summer. And the Fed chair in his statement counseled everybody to kind of look at what's happened here over the weekend in this broader context.

10:54It does seem that, you know, after that tour, things quieted down a little bit. Yes, there is this matter involving Lisa Cook that's still kind of roiling in the background. The president tried to fire her. She's a Fed governor, and the Supreme Court is going to weigh the legality of that in the coming weeks. Help us understand the broader context here of the relationship between the Trump White House and the Federal Reserve going into the weekend. It's obviously a very tense day, but it's kind of too front suit. On the one hand, there is a headline that the White House wants lower borrowing costs, cheaper money.

11:24and the Federal Reserve policymakers have been reluctant to move as fast as the White House because they're still worried about where inflation is at. If you cut interest rates too low too quickly, they're worried that inflation will take off. So that's the first point of tension between them. But the subplot underneath this is that President Trump is also looking for opportunities to reshape and remold the Fed in the way he wants it to be, to share his worldview on the economy. And in particular, he has the opportunity to, of course, appoint a new Fed chair at some point soon to replace Chair Powell when he steps down as chair in May.

11:55Chair Powell can actually remain on the Fed board until early 2028. And the thinking, speaking to Fed watchers, is that the White House are very concerned that Chair Powell might stay on the board for some time and deny them the opportunity to fill that gap with somebody who shares their view on where interest rates should be. And that's why there's a thinking now that this is part of a concerted pressure campaign to pressure Mr. Powell to move on off the board once his term as chair steps up. So there's been that pressure, of course, on Governor Cook with that unprecedented attempt to fire her.

12:29We had the installation of Governor Myron. It adds up to this idea that we're in a moment where Trump really is trying to remodel the Fed the way Trump wants it to be. So what do we know about the Department of Justice's threat of a criminal indictment? That's after the break.

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13:52Federal Reserve Chair Jerome Powell acknowledged the Fed was served grand jury subpoenas late last week. The Justice Department is investigating whether Powell lied to lawmakers in June when he testified before the Senate Banking Committee. Bloomberg is reporting this effort was largely driven by the director of the Federal Housing Finance Agency, Bill Pulte. Pulte declined to comment on that during an interview on Bloomberg Television on Monday morning. The DOJ is outside of my purview. This is out of my purview. I don't know anything about it. And I would defer you to the DOJ. According to Bloomberg Fed reporters Enda Curran and Emera Omokwe, President Trump has said he was not briefed on the Justice Department's investigation, and he had no prior knowledge of it.

14:32He did an interview with NBC News on Sunday night after news of these subpoenas came out. And he said he didn't know anything about the subpoenas. And he said that they didn't have anything to do with his desire for lower interest rates. So make of that what you will. And I posted the Fed chair's statement, the text of it on LinkedIn shortly after the Fed published it. And this is what our colleague John Authors commented. He's a columnist for Bloomberg Opinion, friend of the show. He said, quote, this is quite extraordinary. Powell steps down and Trump nominates his successor only months from now.

15:07It's hard to see the point of this, even if there were a study basis for prosecution. Is it possible for you to see what the point of this is, given the timeline that John laid out there? Well, there's no doubt it's very damaging optically for the policymaking process in the US, David. I mean, if you're looking at this from the outside, the Fed is this preeminent institution. It's independent, as we've been discussing, and it's meant to set the rules of the road based on what the economy needs, not on politics. That's important, not just for the US, but the rest of the world. But now, of course, we have the situation whereby it looks like a fairly deliberate attack on Chair Powell himself through using the route of what's going on with the building site and the cost overruns there.

15:46and of course how will that impact the internal Fed dynamic? I mean when the new Fed chair takes over will the rest of the committee be willing to cooperate with him or her or will they view that person as very deliberately political and will the new Fed chair have trouble convincing the rest of the Fed team that he's on their side for example? There's a question mark now over Chair Powell I mean I think a lot of people would have thought he'd move on but will he now stay for a little while in a deliberate attempt to push back against the administration? So I think in terms of the optics, the policymaking process, this idea that this is really unprecedented now political assault on the Fed, I think it raises a lot of question marks over what happens next, how this process plays out and the reputational damage that it leaves both on the Fed and I think the U.S.

16:30policymaking process. There is this conversation about what Fed Chair Powell does in the medium to long term. In the nearer term, there's another Fed meeting just days from now. What did he say just about what's going to happen in the coming days versus the coming months and years? Well, he didn't comment on monetary policy in his statement and video last night, David. I think most people following this would say this isn't really going to impact the near term path for monetary policy. I mean, Chair Powell, whether you agree or not, and the FOMC committee have been setting policy based on the reason they set out for it, which is they've been cutting rates because they're worried about the employment market, but have been cutting fast enough according to President Trump.

17:07That story probably won't change near term. But then, you know, you go a few months out from now and if we have that new Fed chair arriving on the board, as I mentioned, then does that Fed chair come in the door saying we need lower interest rates at a time when the rest of the FOMC committee are maybe, A, sceptical about the need for lower interest rates? And B, they're already smarting over this extraordinary assault on the Fed. I mean, that's where things will get complicated pretty quickly. So we're in for, I think, a very uncertain few months ahead. I have served at the Federal Reserve under four administrations, Republicans and Democrats alike.

17:37In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability. Who was the audience for that statement from from Fed Chair Jerome Powell, do you think? I think he went directly to the American people. The message is different this time, right? It's not we're just going to do our jobs and keep our heads down. It's, look, you all need to understand that these subpoenas are directly related to the president trying to bend this institution to his will. And I think he wanted the American people to know that and to hear that. Public service sometimes requires standing firm in the face of threats.

18:16I will continue to do the job the Senate confirmed me to do. with integrity and a commitment to serving the American people. Thank you.

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