The Lessons from Jerome Powell’s Defiance of Donald Trump

In March, a federal judge quashed two subpoenas that Pirro’s office had obtained from a grand jury and sent to the Fed. “There is ample evidence that the primary (if not sole) purpose of the subpoenas is to harass and pressure Powell into yielding to the Chairman or resigning and making way for a Fed Chairman who will do so,” the judge wrote. “On the other side of the scale, the government has presented no evidence that Powell committed any crime other than displeasing the president.” The Justice Department appealed, unsuccessfully.

These are not the only legal setbacks Trump has encountered. Last August, he attempted to fire Powell’s colleague, Lisa Cook, citing allegations of mortgage fraud coming from one of his political allies, Bill Pulte, director of the Federal Housing Finance Agency. A federal judge temporarily blocked the firing, saying the charges against Cook, who had not been given a chance to contest them, were likely insufficient to justify his firing. After a federal appeals court upheld the denial, the case went to the Supreme Court, which has yet to issue a decision. But at a hearing in January, the liberal and conservative justices both expressed deep skepticism about the government’s case. Accepting the president’s view that he had the right to fire Cook “would weaken, if not break, the independence of the Federal Reserve,” Justice Brett Kavanaugh said.

In a Republican-run Capitol, capitulation to Trump has replaced active surveillance as the general rule. In this case, Tillis broke away from the intimidated GOP pack. From his seat on the Banking Committee, where his party holds a majority of just two seats, Tillis vowed not to let Warsh’s nomination continue in the Senate until the Justice Department drops its investigation into Powell and the Fed. Last week, he reaffirmed that position and called the investigation “fake.” Since Tillis had already made it clear that he would not run for re-election, Trump could not use his usual intimidation tactic: threatening to support an opponent.

For once, the distribution of powers seems to be working as intended. But it’s worth noting that the backlash against Trump was based on two time-limited elements: Powell’s leadership and Tillis’ presence. When it comes to protecting the Fed’s independence for the remainder of Trump’s term, much will depend on the outcome of the midterm elections and Warsh’s willingness to stand up to a president who appointed him to a job he has long coveted and whose desire for rock-bottom interest rates Warsh cynically gave in to. (“Interest rates should be lower,” he told Fox Business last year.)

Warsh’s case is that he has previous experience at the central bank, where he served as governor from 2006 to 2011. “I expect him to take this job very seriously. He cares about the Fed,” Austan Goolsbee, an economist who served in the Obama administration and is now president of the Chicago Fed, told the Fed. Financial Times. Earlier this month, JPMorgan Chase boss Jamie Dimon called Warsh a “great candidate” for Fed chair.

Throughout his career, which has seen him move from Stanford to Harvard Law School to Morgan Stanley to the George W. Bush White House, all at the age of thirty-five, Warsh has certainly proven himself to be an effective networker and progressive. After leaving the Fed in 2011, he worked for hedge fund billionaire Stan Druckenmiller and accumulated assets that the The Wall Street Journal the estimated value could reach over two hundred million dollars, based on his financial disclosure forms. That doesn’t necessarily disqualify him: Powell, too, had amassed wealth before becoming Fed chairman. But the question is about his judgment and his independence. At last week’s hearing, Sen. Catherine Cortez Masto, Democrat of Nevada, reminded Warsh that in 2007, a year before the financial crisis erupted, he downplayed the systemic risks posed by subprime lending. He also welcomed the expansion of derivatives markets. After the subprime mortgage market and associated derivatives exploded, leading to the collapse of Bear Stearns and Lehman Brothers, Warsh acted as Ben Bernanke’s conduit to Wall Street as the Fed participated in an unprecedented bailout of the banking system. Subsequently, Congress strengthened the regulatory system and forced banks to retain more capital in case of emergencies – a move that the second Trump administration is returning to today, with Warsh’s support. In an opinion piece last November, he hailed Trump’s deregulatory agenda as “the most important since President Ronald Reagan’s.”