One Fed battle after another

This is the strongest we've ever heard Jerome Powell speak about President Trump's patterns of attacks on the Fed. He's paid to be boring and not spook the markets. And so over the last year, Powell has been relatively restrained in public. You know, maybe he's a little annoyed, but he sticks to the matters at hand. I'd say terse.

And I'm Darian Woods. Today on the show, what led to the administration's criminal investigation into Fed Chair Jerome Powell? How strong is it and what could come next? It's always worth reminding everybody that The Fed has two goals. Full employment and keeping inflation at 2%. And the main way the Fed does this is through interest rates.

The Fed has lowered interest rates a little bit, but that might not continue. As we found out this morning, inflation is 2.7%. That's above the Fed's goal of 2%.

Powell implies that the subpoena is focused on some renovations. So let's go over some history. In 2017, the Fed board approved the renovations of two Fed buildings. These are along the National Mall. And the project was always going to be an expensive proposition for a few reasons.

Costs have risen since. In 2021, the cost was estimated at $1.9 billion. Now the costs are estimated at around 2.5 billion, a 32% increase. The Fed attributed these to general inflation, more asbestos being discovered, and design changes after consulting with others. Regardless, these cost increases, plus some of the language used to describe the renovations, caught the eye of some Republican lawmakers.

Several weeks later. Trump seemed to cool down on the whole debacle after visiting the construction site with Jerome Powell.

Straight out of the office.

Now, nobody loves cost overruns and project managers can do better at preventing them, but spending more than you originally planned on large projects is incredibly common. For a past episode, I spoke to Danish researcher Bent Flubajer. He looked at 16,000 large projects worldwide and he found that 92% of them went over budget, over schedule or both.

But all of this is just really splitting hairs. The reality is that the Fed's website backs up the substance of what Powell said in testimony. One of the key parts of perjury is what's called materiality. If Powell knowingly misled Congress, would that have had a material impact on how lawmakers made their decisions? Like, would Congress have done anything differently if they had better information about the greenery on top of the underground parking lot?

Now, the Fed seems to have been defending itself. In December, it reappointed a slate of regional Fed presidents, extending their terms. This has the effect of reducing the impact impact Trump or Trump appointees can have on who leads the different Fed banks. This is important because these Fed presidents take turns on voting on interest rates. University of Michigan economist Justin Wolfers wrote on social media. If I'm reading this properly, they just Trump proofed the Fed.

Yeah, and if I were the new Fed chair coming in, this would certainly make me a little bit nervous about defying the president.

So far, the market reaction has been fairly muted. This is a notable, but not necessarily unsurprising chapter in what's been simmering the last year, the politicization of the Fed. In years past, no one's been particularly interested in what party appointed which Fed governor. Now, the Trump administration seems to be doing everything it can to make a body filled with loyalists, including what appears to be fairly weak legal action against the board's chair.