Trump vs. the Fed, briefly explained
This story appeared in The Logoff, a daily newsletter that helps you stay informed about the Trump administration without letting political news take over your life. Subscribe here.
Welcome to The Logoff: Donald Trump is escalating his attacks on the independence of the Federal Reserve, with potentially dire consequences for the US economy.
What happened? On Sunday evening, we learned that the Trump administration has opened a criminal investigation into Fed chair Jerome Powell over an in-progress renovation of Fed headquarters. In an almost two-minute video, Powell described the investigation as an attempt to pressure him into complying with Trump’s demands to lower interest rates.
Trump’s move has generated significant pushback even from congressional Republicans, as well as uniform condemnation by every living former Fed chair, multiple former Treasury secretaries, and economists from across the political spectrum.
What’s the context? Trump has long sought to exert more control over the Fed’s decision-making and to oust Powell, as well as Fed board member Lisa Cook. But members of the Fed board can only be fired “for cause” — which the Trump administration has previously interpreted to include pretextual allegations of criminal activity.
That’s what happened in August, when Trump attempted to fire Cook on flimsy accusations of mortgage fraud. Whether he will succeed is still in question: The Supreme Court will hear Cook’s case next week.
Why does this matter? The Fed is the country’s central banking system and sets US monetary policy, including interest rates. It’s designed to be independent so that it can make decisions that may not be politically beneficial to the president, but are the right thing to do for the long-term health of the US economy. Trump’s latest gambit could jeopardize that independence, and the economy with it.
Why does Trump want lower interest rates anyway? Lowering interest rates can, in the short term, juice the economy, which would be a boon to Trump heading into a midterm election where the GOP will be on the defensive over economic issues. But lowering interest rates generally boosts inflation; lower them too far, and the economy can spin into crisis.
And with that, it’s time to log off…
Here’s some good philanthropic news for your evening: Billionaire MacKenzie Scott is donating $45 million to the Trevor Project, an LGBTQ+ advocacy and suicide prevention organization. Its CEO, Jaymes Black, described it as a “transformational” investment and the single largest donation ever to the organization. (If you’re interested in learning more about Scott’s approach to philanthropy, I highly recommend my colleague Sara Herschander’s reporting on Scott’s “billion-dollar bet on vibes.”)
As always, thanks for reading, have a great evening, and we’ll see you back here tomorrow!