Fed–Trump Feud: The episode examines the DOJ probe of Jerome Powell and frames it as an optics battle over Fed independence versus executive influence.
Policy Outlook: Speakers argue the policy gap is narrow—Trump wants faster rate cuts while Powell prefers a steadier path, with overall conditions still characterized as easy money.
Market Implications: Markets largely shrugged at the probe; risks are more about institutional credibility and governance rather than immediate asset price shocks.
Central Bank Solidarity: Global central bankers publicly backed Powell, highlighting ongoing international coordination and defense of the “independence” narrative.
Personnel Dynamics: Potential Senate resistance to Trump’s Fed nominees and questions about Powell’s status could shape the FOMC’s composition more than its crisis playbook.
Crisis Playbook: Regardless of party, the panel expects the same inflationary emergency response in future crises—bailouts, liquidity support, and expanded balance sheets.
What to Watch: Interest-rate trajectory, balance sheet policy, inflation messaging, tariff blame-shifting, and any erosion of the Fed’s perceived independence.
Transcript
[Music] Welcome back to the power and market podcast. I'm Ryan McMaken, editor-inchief at the Mises Institute. And with me today are two of our contributing editors. We have Connor O'Keefe and we have Tho Bishop. And uh this week we've all written articles on this feud going on at the Fed uh this week from different angles, looking at different aspects of it. And the I don't know if if you've been paying attention, but Donald Trump doesn't seem to like Jerome Powell very much. That is the chairman of the Federal Reserve. But it's always hard to tell exactly why. And we'll look at that today. We'll try and really read between the lines, figure out what is the real reason that these two guys really, and I don't think it's just one way anymore. I think they genuinely both can't stand each other. Uh it strikes me more as kind of like of sorts a palace coup where two guys within the regime are are sniping at each other. But uh yeah, we'll talk about that a whole bunch today as well as really what this might mean for international aspects of of central banking and that we've also seen other central bankers come to Powell's defense. Uh but first though, let's talk about our first event of 2026 coming up in February, right? >> Yeah. The countdown is here. I am super excited. It is uh in Oklahoma City. First time we've been there in quite some time uh for an event on entrepreneurship beyond politics and we've got five great guests, none of which I believe are facing federal indictment for misleading Congress um at this time. Um those include Dr. Keith Smith, the great Dr. Dr. Keith Smith at the Oklahoma Surgery Center and uh the free market medical association. Caitlyn Long, one of my personal favorites who is a titan in the crypto space doing incredible things uh in the space of banking, Bitcoin, crypto assets, all that sort of stuff. Um, we also have, of course, our very own Ryan McMakin, Pereand, which would make sense since he's right there, uh, as a professor, and, uh, Timothy Terrell, who is, uh, always one of my favorites, always ranks very highly at Misesu lectures, always does a great job. Um, and so that is a great, great lineup for February 21st there in the Oklahoma City area. And a reminder that if you would like to visit the beautiful Mises Institute campus in Auburn, Alabama, we have a great opportunity in March and actually in uh in May, we've got uh Libertarian Scholars Conference followed immediately by Austrian Economic Research uh conference. If you like seeing scholarly output, if you want to see the latest cutting edge research in libertarian philosophy or Austrian economics, you can do that on March 19th through the 21st in beautiful Auburn, Alabama. or if you've never been able to make Mises University or if you're a Misesu alum and want to return and get a kind of re reive the glory days, Rothbart University is a firstofits-kind event on May 14th through the 16th where we try to bring the Misesu experience to our donors. So you can find all of this and many, many more. We've got a full lineup. We're going to San Diego. We're going to all sorts of places around the country this year. You can find all of that at mises.org/events. And if you're watching on YouTube, wearing a Misus Institute hoodie today. It's hoodie weather even in Florida. So, a reminder, we've got some great apparel at the Mis Institute bookstore. I was trying to see how many plugs I could fit in one ad read. So, uh I think that counts as five. >> Well done. >> Always be selling, guys. Always be selling. >> Well, let's talk about Jerome Powell. >> Yeah. >> And this was all over the news earlier in this week. like unavoidable if you were following financial news at all. So the the big deal is that Trump's justice department has launching a criminal probe against Jerome Powell, chairman of the Federal Reserve. And it all relates back to in name officially it's about Powell supposedly lying to Congress about the use of funds for a renovation project at the uh Federal Reserve. Now, we've mentioned this a little bit in passing a couple of times, right? We have no doubt that the Fed wastes money, that the Fed is corrupt. Uh but the reality, of course, is corruption is perfectly fine in Washington as long as you're in favor with the ruling regime and the White House, right? You only get prosecuted if you're making someone mad who is the decision maker on these sorts of things. Uh this is why no one has been prosecuted for Epstein, right? Magically, no one is guilty there. there's there's not even any real meaningful uh investigations, right? Gee, I'm I'm sure it's because everybody's so innocent. We know how it how it really works. And so, of course, you look at this and you're like, "Okay, so why is he really being prosecuted?" Uh what I thought was funny is that when a reporter asked Trump about it, Trump said, "Oh, I don't I haven't heard anything about the prosecution." Okay. like if there's if there's been a more obvious lie in the last few years of politics, I don't know what it was. Uh and of course, if you believed that, you should not be allowed to operate heavy machinery. I mean, you're just too stupid. So, I mean, this is it's so obviously something that is being orchestrated from the highest levels of the administration. Now, uh, this all came down earlier this week. And what was interesting is that the Fed almost immediately put out their own statement on it. They put out this little, I don't know, minute and a half statement from Jerome Powell, a little video talking about how just saying outright the real reason for the prosecution is that they want us to take orders more directly from the White House. Not even speculating. They're just saying, "Hey folks, the there's only one reason that this this uh this case is happening. It's because Trump doesn't like our policies and or I guess even more specifically, Trump doesn't like that we're not uh doing his policies the way he wants." So they put that out and that was just so clearly basically a declaration of war by both sides against each other. Uh obviously Powell was essentially calling Trump a liar for claiming that the real prosecution is uh because he supposedly lied to Congress on this talking about the subtext and all that. So it's just been a very interesting few days whether while they've been going back and forth on that. And so I think the question for you though is what's what's really going on here? Is it really just a disagreement about policy? I've I've come I noticed that I noted this also in a recent episode of Radio Rothber where I said as I've gotten older I have kind of realized that you can never discount just personal problems when it comes to these sorts of fights in Washington or any place where there's power uh where they could be fighting just because they don't like each other on a personal level. It could not even have anything to do with real policy that happens. Um, so what do you think? I mean, what what's the proper framing of this? And and also you could just touch on the issue of right are there any good guys in this fight and what what's the real motivation for this investigation? Well, >> first one of the interesting things I think about the way this entire story is being covered is that you I was reading number of articles on this and the one thing that almost never gets brought up is any real consideration of the actual facts. So, I was trying to figure, yeah, does the new Fed plan, the new Fed building, right? Yeah. It was like the $3 billion renovation. Like, is there actually a VIP elevator like is there actually a VIP dining room? Um, you know, are there behind I mean that the Fed has said, you know, come no, no, no, whatever. And so, so as best as I can tell, let's just start with from that. The best I can tell is that the best concrete thing I because some of this stuff, some of these proposals, some of these claims, and this started with like a Tim Scott, I think it was actually the one that that asked Pal about some of this sort of stuff. Um, the one thing where you could argue as a concrete black and white thing. Um, and those the extravagant stuff came from like a 21 report, a 2021 report about what this could look like. Um, the biggest thing and the per it was it was Anna Plan Luna from Florida, um, who I generally like. um she's the one from Congress that you put in a letter kind of you know sparking this if if one believes the official narrative there or played a role in that is that uh POW claimed during this testimony that the Fed has not been renovated basically since the Eckles building was first built in the 30s and that it's you know it it it it pours water in it's unsafe right all that sort of stuff and she pointed out like well actually the Eckles building has been renovated in the late 90s up to like the early 2000s and so there got you right there. This is a false statement and we can argue about whether or not it has a VIP dining room, but like this is the one concrete thing that clearly is whatever, right? Um, and so I mentioned that only because again like nobody else is really even covering considering whether or not he actually lied, right? Like everything else is focused on the on the intrigue, which is fun and the real story. Um, and and so I mean, you know, it it is undoubtedly true, right, that that Trump has been trying to bend Pal to his own way. He tried to do it the first time around with tweets. um you know this time you know it's obviously you know he's been trying to stack it with loyalists he's been a lot more hardcore um in in I think vetting the decision-making of you know I think Stephen Moren for example is different than the other Trump appointed people of the past um that that did make it to the Fed right I think he's more explicit and you see it even with votes Steven Moren um has been the one asking you pushing further on uh the recent interest rate cuts right um and so I I do think that I mean if If Trump could, you know, snap his fingers, he'd go to 1% interest rates, zero interest, zero interest rates right now. And Powell has been rather wanting to kind of maintain this sort of steady decline, right? And and you know, I think there's, you know, we've seen a slight easing, a taking off of the gas pedal of um, you know, you pow, you know, largely sort of, you know, back in the day was he was paying lip service after the transitory whole thing like, oh, we, you know, we we have to we have to we have to get serious. And it's it's been slow since then. And and and a big part of this though and this all comes down to and Connor's articles addressed this and and u that he had this week is that Trump threatens the entire facade, right? This this myth this notion of Fed independence that is beyond political motivations is the key cornerstone is the essential myth of central banking in you in America but really in and through the civilized you know higherend world right it it is it is the perception of independence that separates the the you civilization from from barbarism right if you if you take this sort of testimony seriously and and I think that is a big you know I I I do think that that is the The big draw here is that Pal doesn't want to be seen as being pushed around by Trump. He is, you know, he he he does not take the company line when it comes to tariffs, right? He is he is and and and really this is the big battle is Pal is trying to place the blame for bad economic performance on Trump's tariffs and Trump wants to wants to take push the put the blame in Pal's lap. Um, and so that I think ultimately as much as anything else, it's who should be blamed for the economy being something that Americans feel as not being where it needs to be. And I think everything stems backwards from that. And it's again, it's pretty incredible that you you've seen Pal you do this prop this I don't say propaganda campaign, but the sort of communication that we saw um is is unprecedented. And of course having a Federal Reserve chairman being under investigation being or the the the the focus of a probe is unprecedented. So this is these are unprecedented times all around. And my personal p perspective is I like seeing them fight go at it. U and so you know I'm here with popcorn but uh but I think that is that that's my perspective on what this week really truly means. Yeah, Connor. I mean, I am I continue to see people in the uh financial world still perpetuating this idea that uh this is some sort of new groundbreaking thing that the president is doing trying to influence policy. Um I I I don't think that's actually the reality of what's been going on the last 50 years, but I could be wrong. I mean what what's the reality of the political influence uh that is brought to bear upon the Fed, >> right? This is um as though kind of pointed out what I see is the big overarching dynamic here is kind of what I'm calling an optics battle and yeah I I would definitely recommend people look especially uh Jonathan Newman last year he gave a talk and um he wrote up an article I think for the magazine laying out the fact that Fed independence is a myth. It goes back uh specifically to this 1951 accord that was it's kind of framed as the beginning of this era of Fed independence that we're living in right now. But it wasn't. They just described themselves as independent while continuing to help the Treasury fund all the all the wars and programs that they wanted. But as though pointed out like that that um branding of this independent kind of governmental kind of non-governmental entity that is like wisely uh guiding the economy is so crucial to their power and that really is what's under threat with Trump kind of acting the way he's acting. And I think it's important to point out that it's not really a policy thing at the end of the day. like it they Trump could be pushing for the exact kind of policy that the Fed would want to do and it would still be a problem from their perspective because they don't want to have any of the optics of the president, you know, uh ushering them one way or the other when it comes to policy. Now, that being said, the Trump does want interest rates to be cut faster than it seems the sort of central banking establishment want to cut them. And that's kind of a whole other interesting dynamic there. But at the end of the day, even if he was completely aligned on policy, they want him to shut up and stay away so they can continue kind of pushing this false narrative that um there, you know, this false brand of this kind of independent, wise, non-political, nonpartisan central bank. And so I think that what we saw from Pal was kind of not maybe not the opening shot, but a major escalation from that other side to try to push back and try to frame Trump as this like this diversion from the status quo that he's kind of bringing this whole idea of a political Fed into like possibility for the first time ever. I think that's going to be the the propaganda that we're really going to be fed over the next couple years or, you know, however long this this dynamic with Trump specifically uh continues. Th this was kind of a a major escalation on that front from their from their perspective. >> Yeah, this is just the the smallest difference in real policy here where they you could imagine a different Fed with just uh someone like Janet Yellen in charge of the Fed who even when they the the the career of Janet Yellen at the Fed was just to say over and over and over again that the economy is strong and good and great and we're keeping interest rates at basically 0%. at a quarter percent at 25 basis points. That was the great lie. The great gaslighting was the economy is great but we have to keep interest rates close to zero >> because inflation's too low. That was her whole thing >> because inflation's too low. >> God forbid your your life gets cheaper and so we have to get more inflation. And I I can't see any reason why Trump wouldn't have loved that sort of thing. But now we're looking at oh gee uh interest rates instead you know we're talking about the t the target policy interest rate as a federal funds rate which does influence other especially short-term interest rates but also even long-term in a broader way and a a more indirect way um under 4% now I mean what's the complaint I mean through the entire second half of the 90s it was up over 5% most of the time this is not a low interest this is not a high interest rate regime. These guys acted like it's Paul Vulkar in there and it's 1983 or something. It's just completely untrue. This is a easy money uh regime and and you can't go just off interest rates, right? Because on top of the targeted trade is the Fed's huge portfolio where they're holding 8 trillion bucks worth of treasuries and mortgage back securities on the books. And that all contributes to fueling asset price inflation toward keeping liquidity in the market. So when you take all that into account, you're looking at uh even more monetary inflation. So, this idea that let's just absolutely destroy the idea that there's some sort of uh hard money conspiracy going on the Fed because that just obviously is not the case. >> Well, the problem is that 4% interest rates seem massive when the Fed got the economy addicted to, you know, essentially 0% interest rates. And and here I'm I'm going to give some friendly advice to the DOJ. Um, again, I'm I'm of the case like I it drives me crazy when I see like there there are certain types of like institutionalist libertarians and some conservatives out there who are who are you appalled at this entire idea. No, I want more investigations. I want more indictments of Fed chairs in general. I'm I'm I'm pro-indict of Fed chair as a general rule. Um, you should have to prove why you shouldn't be is kind of the way that I I would like to see this entire process go. But but here here are some things that should be also investigated like like you know it was a lie to Congress when uh Jerome Powell claimed that inflation was was transitory during co right it was a lie to Congress when Ben Bernani right was up there during the financial crisis saying oh we we can restore normalization of the balance rates whenever we so choose you know as long as it doesn't go on indefinitely we're we're perfectly fine right and even though there there has been a slight unwinding of the balance sheet in the last couple years or so we're we're going right back up right so this entire idea that that we can we can resto restore restore normalized monetary policy was another lie. Um, you know, there's there's plenty of bangers that you can also get from from Yellen, from from Greenspan. Again, we we've had a a good run now of Federal Reserve chairs that have engaged recklessly and the the economy got addicted to it. And so, people saw 0% interest rates. They saw, you know, 3% mortgages as the new norm. And everyone's responding from that. And and Trump again was fas I remember Trump back in the campaign trail in 2016. And he was like, "Yeah, like you know, normal people are getting screwed by low interest rates as a as a as a building man. I I love it, but like normal people are getting screwed." He could identify he could he could actually, you know, for for Trump like eloquently talk about the bubble that was existing, but he doesn't want to be the guy in charge of it. So he's like, "You just just keep keep reinflating this baby." And but that's the problem though is again like people acting as if like what what is what has been made also clear through this entire process through this this last week news cycle. I mean again I think making this explicit rather than implicit has some value is that people essentially view political uh independence as a lack of any sort of political accountability that that the Fed share must be a beyond reproach regardless of what they do because otherwise it is making things political. Now is this the pettiest little thing you can find? Sure. um you know, but still like that is ultimately what is driving the way that this is viewed and that breaking away that facade that that perspective of the Fed is positive regardless of what one might think about what comes next. And I think that's that that that this is some that's the I think this is part of a much larger story of you know Trumpism American politics is you know you may not like the egg the omelette but break the breaking some of these eggs breaking some of these narratives you know again you we should not be you know bemoning the loss of credibility and perspective on these great American institutions bringing these things down the mud is very positive if your opposition if you recognize just how bad you know status quo Washington has been for decades. Yeah, it's not even true in theory uh in statute anywhere that the Fed is totally beyond the reach of the federal government's ability to reign them in, control them, tell them what to do, change their mission, uh pull up the um the chairman and force them to testify. All that stuff is in the statute, totally within the realm of Congress's control. The only distinction, and this is a this is an important point that Alex Pollock has made more than once, one of our senior fellows, is that the only distinction between the usual uh executive branch agency and the Fed is that they're supposed to be insulated, at least in theory. And whether that's even a good thing, whether that's even possible uh if you actually adhere to the letter of the US Constitution, is it possible to create this special sort of executive uh branch style entity like the Fed and not have the executive branch exercising control over it? The the federal courts have actually been debating that issue, but at nowhere has there been the claim by anyone who's actually analyzes the statute that the Fed can just do whatever it wants. the the the Congress can eliminate the Fed. They can defund the Fed. They can or completely change the board of governors. They could do anything that they want to the Fed. And Congress is a political institution, guys. I mean, I just So, this whole idea that the Fed is independent and doesn't answer to the elected government. Completely untrue. untrue on every single level except in the imaginations of some people who are out there to push uh the Fed being able to do whatever it wants. So obviously let's just move beyond that. It's always been nonsense. The only really debate is should the executive branch be able to exert political control? No one denies that Congress can do so. That's it. That's the whole extent of of the debate. So spare me all this stuff about how the Fed should be able to do whatever it wants and no one in the elected government should be able to say anything about it. >> I think one reason this uh fiction has been able to stick around for so long is because people like to swap uh non-political and nonpartisan um out for each other. that really at the end of the day like the reason the Fed can appear non-political is because both parties have been very behind it and its mission and the way it's carried out its mission in the past. And so it's been kind of easy to spin it off as as that kind of institution. But I think it'll be very interesting. I'm fascinated to see how it's going to play out once Pal's term is up and Trump gets a chair in there. I guess in May is when that's going to happen. Um because like if you just look back I mean I haven't been watching the Fed for that long but you know I could kind of look back in history and I can't think of a time where there was like a Fed chair who was basically against like the rest of the FOMC. I think like like this every time that it's always about um like it's like this culture of agreement and they're always coming together and like they won't even really put something up to a vote until they're confident that it'll pass. And if that all goes out the window and we start getting some chaos in there with like a a Trumpapp appointed basically attack dog in there, I I mean like there are just there are so many ways that the Fed could potentially be desanctified as we're kind of talking about um in the next couple months. And of course I would be like 100% on board with all this if Trump was pushing for a better monetary policy. Fortunately, he's pushing for a worse monetary policy which like really sour this whole thing. But there is still potential for some real good to come if um this fiction is exposed as a fiction and the chaos of some real battles happening um on the FOMC in the near future. That could be one way of getting there. >> I think I saw Bob Murphy, our colleague on on Twitter X this past week and and he was debating someone like you know he was so was trying to argue like oh well the Fed chair doesn't set interest rates like it's it's a vote with everyone else and he he asked him like well has the Fed chair ever not gotten the interest rate policy that they want? I was like, "Oh, yeah. It happened once and it happened like you know like 1930s like I mean this is he resigned." Yeah. >> Yeah. Yeah. And then then they named a building after then may which may or may not have a VIP dining room but but again just going to show again like you talking about like Yeah. Oh, Congress. This should be the the thing is like I mean like back like one of my favorite little anecdotes is like during 2008, right? They created these maiden lane entities like these these little side corporations to to help deal uh you deal with with uh international you take up international assets and things like that which which they they went they they had to create these these these new entities because it was very well established that they couldn't do it under the current charter. They did not inform Congress prior to u you they of course emergency powers, right? So like oh well it's emergency we've got the power to do whatever we want, right? And and and did anyone in Congress really really care like outside of Ron Paul and Alan Grayson like you know there there was a there was a small actual like that was the only time we got like anything resembling a Fed audit is that there was like a a timesensitive fed audit put into DoddFrank because Alan Grayson and Ron Ron Paul were doing a you know teaming you tag teaming that from from different sides there. But but like again congress we we know congress is not going to do anything like there there's there's the occasional push you know the fed will get passed by the house every year the won't do anything u you know there there was a brief discussion serious discussion with Jeb Hinserling who was financial services chairman um my old boss u but you about doing a rules-based monetary policy that's not going anywhere you know Congress has is you know they they'll they'll take the occasional uh uh you know duking it out on occasion uh during Fed conferences for show like Elizabeth Warren will do this from one side. You'll have, you know, the occasional person in the Senate that'll do it from the other. Um, uh, the Kennedy from Louisiana is usually pretty good at that, but there's nothing there's nothing further. They'll write a firmly stern letter, you know, right? But there is no congressional oversight of what the Fed does in any sort of meaningful way. There's never going to be a serious audit of the Federal Reserve. The Senate won't allow it. And so again, like the idea, so so again, Congress is clearly not doing this job. again whether or not should be in the executive branch, but like the Congress has been in all in all facets in all practicality has been able to do whatever the hell it wants for quite some time. Um, and it's good for, you know, some of those toes to be stepped on. >> I I would bet though that prior to like, I don't know, seven, eight, nine years ago, nine out of 10 incoming members of Congress don't even know that the Federal Reserve existed or what its purpose was and that that persisted for years, even while they were in Congress. I would say maybe it's down to 50%. Now that and I wonder if you pulled if you gave a test to all members of Congress and asked them what is the Federal Reserve and what does it do? The members who don't sit on any sort of finance committee or banking committee or they don't have the slightest clue, no idea. And so yeah, they don't even understand it. They can't imagine how it relates to them. And I don't know if people still believe this, but I remember when I was little, there was kind of this idea that members of Congress were smart and wellinformed that they had some sort of like special knowledge. But of course, once you meet some of them and interact with them, you realize they have no actual skills other than how to get elected, how to get nominated, how to raise funds, and how to get reelected. like they except for the small percentage that are like surgeons or something very few of them have any practical worth something knowledge at all and so why would they know anything about finance uh and the Fed they don't >> well and it also true so again you know on the house financial services committee like the there's a the guy you know so so you have these different subcommittees and you have like your your top policy director right um I remember that the housing policy director was caught up in the countywide the the countrywide scandal, which neither here nor there. But the the guy that was in charge of the monetary policy guy, he didn't care about monetary policy at all. He got mad at the Ron Paul people who as chair of the domestic monetary policy subcommittee, you know, they get to have uh you know, people there. He got mad that they, you know, that they wanted to do the job. Like his idea of a monetary of a of a of a you having Bernanki in was bringing the office talking about Nat's baseball and then going on his way. Like he had no he had no interest. He he liked mint bills. Like what was what was driving monetary policies? How quickly could you pass a commemorative coin? Like that's what that's what monetary policy means to your average member of Congress. It's nothing none of the rest of this stuff. >> And I think what's interesting is and I was doing kind of a deep dive when I was writing this article. Um like that is a purposely constructed state of affairs like this was all if you just look back the entire history of the Fed. I mean it's more famous now like how it was founded like the meeting at Jackal Highland. It was very secretive from the beginning. I went down a whole rabbit hole about the um architecture of the uh Eckles building just because it was it was a lot more interesting than I expected it to be. And of course, it's in kind of the news right now with the the renovations, but it was basically like in the 1930s more power getting concentrated in the Fed board working in DC rather than the regional banks. And they were all working out of the Treasury building. And you could just see like at the time they were like this is not great because we're supposed to be this kind of like independent um non-political entity. And there they are working in the treasury building with the administration there. And that was like why in the 19 I think it was 34 I think when um they authorized this new building. And then they they put on a whole like competition to find an architect. And you could see in the directions that they're giving these architects that they're like very clearly trying to concoct this very specific way that they want the Fed to be like thought of through this building. and they're talking about how they want it to be very governmental in character but also very like different than the other buildings you'll find in the National Mall. the winner he I guess the I don't know a lot about architecture but it was a strict classical design basically like the foundation or the structural uh like skeleton of the building is the same as kind of these classical buildings like the Supreme Court the Treasury building but they sort of strip out all the columns and ornamental stuff and it's like all of this is very purposely put together to really feed this specific idea I think of the Fed they want to be thought of almost like this economic priesthood that's like quietly kind of toiling away in the heart of Washington that people aren't really, you know, concerned about. There's not any of the drama associated with the rest of the government. And that is like a very purposely put together, I mean, I'm calling it branding, but that's what it is. And so this whole idea that like, yeah, members of Congress is it's sort of absurd there because they're supposed to be the ones steering the ship um in DC, but for the entire country, most people don't really think about the Fed or really haven't really thought about the Fed. I think it's it's gone up a bit a bit since really the Ron Paul years and I think it's going to go up a lot more in the coming months if it really starts to become a political battleground. But that's all very purposely put together and that's sort of what is under threat right now as Trump is making this more of a kitchen table issue and that's what I think they're I my theory is they they figured that there's no way to really put the genie back in the bottle. So they're going to try to really push the idea that Trump is changing the status quo. it was all calm and working perfectly fine until he came in. He's messing all this up and then once he goes away, however long that's going to take, they can kind of get back to it. So, I think that's going to be sort of their strategy going forward. >> Well, I think in the end we will see uh how little real difference there is among anybody when it there is an obvious crisis that takes place. Um there's there's an interesting concept in his people who look at the history of the state uh and state formation, real state power, and really just does constitutional government work and that sort of thing. And and a point they often make is you only really know who's running things when there's when you're in the state of emergency. When you're in the state of emergency, that's when the people with the real power assert their power and they take over. And all of that stuff about controlled government, all of that stuff about separation of powers, all that stuff about checks and balances just goes right out the window and you find out who's really in charge. And I mean, how many examples can we point to? I mean, basically anything. Anytime there's like a serious war, uh, that's just what always happens. That's what happened during COVID. The executive branch basically just started bossing everybody around. Congress couldn't meet in person, they claimed, and then just started throwing money at everything and gave the president whatever he wanted. And and then, of course, we're in that state now with war. All they have to do is claim that there's some that China's going to take over Greenland, China's going to take over Venezuela, give me whatever powers I want. You find out what's how this country really works in cases like that. in the constitutional doesn't mean anything. And the same is here. How would policy, monetary policy, fiscal policy been any different if um John McCain had been elected in 2008 from the policies? So would the McCain policies have been different in any way from the Obama policies in that period? No. Absolutely zero reason to believe that. It would have been the same uh stimulus quote unquote driven fiscal and monetary policy would have happened. It would have been a continuation too of what the Bush administration was doing in terms of crazy bailouts and all of that sort of stuff. That would have all continued if Gore had won in 2000 instead of 2001. Would there been any difference in uh the response to 911 as well as to the recession of 2001? There would have been slight different in flavors, but we all know that it would have been essentially the same thing. It would have been Greenspan would have been handed whatever power he wanted to do and he would have done it. COVID, great global financial crisis, 911, uh the dot bust, the policies are all the same no matter who's in charge because it's declared to be a state of emergency whether in fact, literal fact, or uh in the rhetoric used on Fox News or whatever. So then the regime just does whatever it wants and you'll find out that the bankers are in charge and that whatever big rich guys want bailouts get their bailouts. So that's what happens over and over and over again. And so that's what's going to happen next time. And the the the bad thing is that there's going to be the normal people are going to feel the brunt of the downside of that all the more this next time because things are slowly spiraling out of control in terms of price inflation, sort of declining standards of living, uh in terms of the US's geopolitical situation. All of that is getting worse and worse. But as far as the regime is concerned, there's no reason to change anything. just the exact same policies. We'll weather inflation just fine and screw everybody on fixed income or on the low end or first-time home buyers and all of that. Who cares? All that matters is that we, the ruling oligarchs, get our free stuff when the crisis hits. So, that's what we should expect. And it's absolutely naive and fantasy land sort of stuff to think that Trump would have some sort of significantly different policies from what the Fed would do on its own. in case there was any sort of significant financial crisis. So, a lot of this just seems like uh I don't know, is this the right metaphor? Rearranging deck chairs on the Titanic. I mean, it makes no difference. These are people like playing around with little aesthetic changes while there's much bigger things happening. And then when the real crisis comes, they're all going to be in agreement anyway. And we can know this. We can predict this. They're all going to close ranks and be in agreement when there's a real crisis. They just have the privilege, I think, of disagreeing and having their little petty disagreements among themselves right now. And that's all we're really seeing. At least I don't know. That's my uh that's my feel for the situation. Uh because I have absolutely zero confidence there's any real principal difference that anybody is willing to expend any actual political capital on uh anything other than what we already know is going to be the easy money, highly inflationist response to the next crisis. And I think the biggest change that will happen from this is is personnel and not policy. I mean, everyone's inflation is during a during a crisis. But I I'm very interested to see whether Steven Moren gets reconfirmed this year because his term was a was a special kind of end of end of term things, right? So, he's get get revoted in by the Senate this year. Um, you know, does Pal stay around even if he's no longer fed chair because his his board his term on the board outlasts. I could see Pal refusing to go now, right? Um, and so I I I do think this is where that reflexive institutionalist senatorial Republican, right? You know, it's it's people like Tom Tillis, um, who's not running for re-election anyway, so there's nothing Trump can do there. It's the Lisa Marcowskis. It's it's those sort the Suzanne Collins. you know, um I I think this because again the reverence and all this sort of stuff, it could lead to some personnel changes where Trump even has less in influence on the Fed when it comes to the bodies in the room, which could have, you know, longer standing periods, right? A longer influence down the road. I I could very easily see the Senate just saying, "Nope, your people are gone. You know, you're you're going to you're going to put people that we're going to accept and there's there's no more favors here." Again, what that means in a crisis is going to be very very little. But in terms of longerstanding influence on the Fed through personnel, I I think you're going to see a much tighter filter be used by the Senate's gonna backlash because again, how dare you go after, you know, good old Uncle Pal. >> Yeah, I think there's um there's no question that you're right that during a crisis they have the exact same policy. I think that uh where you're going to find maybe a little bit of difference is before the crisis hits. And the way I kind of look at this is you sort of hinted at the ratchet effect, a topic we've talked about a lot here, that it's really during periods of crisis when government grows a lot faster. Um, and the reason for that is not it's like it can kind of sound like it's almost like a an inverse of like when people blame inflation completely on greed and it's like, okay, why did they suddenly get greedy at this point? It's not like during a crisis the government is suddenly a lot more interested in power grabs. it's that during a crisis they can get away with power grabs that they wouldn't be able to if there was not a crisis. And so I think um I do believe that the main reason that they're really freaking out about Trump is optics. But I do think that they there are there's a worry that Trump wants to basically bring a crisis level monetary policy into, you know, he wants to start doing that before there's actually a crisis. And I like so much of this is about them doing as much as they can get away with. There's no question the sort of monetary establishment are fans of easy money, but they don't want to push it too far when things are not in a crisis kind of chaotic state. And so I think there is a little bit of fear that Trump will come in there if he actually really takes control essentially starts uh flooding the economy with easy money before, you know, it's really something that they could get away with. People start waking up to the effects of that. Maybe there's some serious inflation there. I think there was a little bit of anxiety around that, but like what was notable to me with this POW stuff is the markets didn't really freak out about it. It was mainly a kind of media freak out. And that signals to me that this is more the media personalities, the political figures trying to kind of um jin up panic rather than them just reporting on panic. So I do think that the optics is still kind of the the most important dynamic here. But I I do think it's important to point out that like yeah, just because they might be a bit worried about Trump being too inflationary, it's not because they're against inflation, they just don't want to push things too fast uh that in in a way that might risk their power basically at the end of the day. >> Well, that kind of relates to our final issue here and I just kind of want to get you guys opinion on what you what you think is behind this. Uh so on January 11th, the central bankers of the world united to express their support for Jerome Powell. This is a short statement. I'll just read it to you. It's uh says internet. This is posted at the European Central Bank's website. So ecb.uryuropa.ed.eu. >> Where else would it be? >> Of course. And this the statement is what it says. International central bankers on the statement by Federal Reserve Chair Powell. Uh this is the the little video that Powell made in response to the the the Trump uh investigation. So the central bankers of the world state, "We stand in full solidarity with the Federal Reserve system and its chair Jerome H. Powell. The independence of central banks is a cornerstone of price financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence with full respect for the rule of law and democratic accountability. Chair Powell has served with integrity, focused on his mandate, and an unwavering commitment to the public interest. To us, he is a respected colleague who is held in the highest regard by all who have worked with him. Um, well, I mean, Trump's worked with him. He doesn't hold POW in the highest regard. So, I mean, wrong. All right. So, and then signed Christine Lagard, Andrew Bailey. Oh, Christy Lagarda, the ECB person, Andrew Bailey, Bank of England, and then it just goes down. You got the uh the Swiss Bank and Denmark. You forget that some of these countries still have their own currency. U Swiss National Bank, uh and on and on. Boy, Iceland, a island of 300,000 people. Uh they're on board. And oh, Bank of Canada's way down the list. I wonder if this reflects Oh, it's it's not even in alphabetical order. So, I don't know how they determine who's higher on this list. Uh, but so, okay, so bankers of the world have they're in solidarity. This reads like a little bit like something that would come out of like the pullet bureau or like the u the the second Soviet. Uh, so I mean, what does this mean? Why why do the central bankers of the world feel the need to intervene in what is allegedly of course we know it's not a domestic American institution? Right? The reality of course as has been obvious since at least the '9s is that the central bank has huge influence in terms of how other central banks inflate in terms of how they set their policies. And just one thing I would throw out there just to show the way that the Fed has to coordinate with other central banks and why other central banks want to to coordinate with the Fed. Just imagine if the Fed really did let interest rates go way way up and that the US was suddenly paying way way more interest on its debt than say European government bonds or uh English government bonds. You can see how that would be very attractive to a lot of investors who were looking to get better returns on safe government bonds. that could be problematic then for European governments that are trying to issue debt. Wouldn't that then drive up perhaps um the the the need the drive up yields for other governments? That's something to consider. Uh and then we can see historically as well that uh the US Brendan Brown's done a lot of good work on this too. The US is always coordinating and has been uh ever since uh the early early days of course coordinating with the UK. But just one recent example is the Plaza Accords which was a deliberate attempt to devalue the dollar to make other countries happy and foreign central bankers were very interested in that. And then look at where the 2% inflation target just magically appeared in the late 1990s and early 2000s and all of the central banks fell into line on that where the European Central Bank and the US just started talking about it in the 90s. It was Janet Yellen who really started to push it. And then in the early 2000s, it becomes European Central Bank policy. And then the US central bank, which had informally been following the 2% inflation standard for a while, formally adopts it. And all along, right, the idea that these people aren't talking amongst themselves, that they're they're not coordinating is absurd. uh obviously and I don't know if they just are so freaked out by the idea that one of their one of their kind uh is being prosecuted that they're trying to scare off their own governments from doing anything similar. I don't know. I I have no real theory here except that this is just an illustration of how yes, of course, there's coordination among all the central bankers. Uh but that's is that's a separate question from why they feel the need to issue this statement. I I don't know. What do you think though? >> Central bankers of the world unite. Um because of the cherished the deep standing love for democracy. Like that's that's first thing I think of is central bank policy as some great democratic representation of the people. Um yeah, I mean I have a feeling that that none of those people were particularly big Trump fans prior to this. I I think it's always great for them to, you know, make make themselves feel important and and I think, you know, Powell has been a he has been a a a good partner to work with. Um, and you know, what whatever impact that has on policy as a secondary aspect of it, but you know, this is this is, you know, a great illustration for one thinking like any of this stuff really I mean matter like should matter at all um to anyone else is is itself quite quite amusing. But again, that's exactly what I expect from a document on the ECB's website. Yeah, Connor, I mean, does this does this tell us anything new? Uh, is there like a political aspect to this that we're missing? Maybe there's domestic concerns. Are foreign central bankers concerned that they might face something similar? What do you think? >> That's sort of what I was thinking. Like central banking is a worldwide scam and if one population starts to kind of wake up to that, then there's risk that that'll spread, especially in our like hyper globalized information environment these days. There's also just like and I think this was a little bit more of a dynamic in Trump's first term, but it feels like people in these kinds of positions are always looking for brownie points and the eyes of kind of the anti-Trump um people. So, if you can kind of put a a statement like this together, like it definitely probably makes them feel good. And um yeah, it's like they're getting all these this praise for issuing a rare rebuke. That's become something I I feel like every single week I see a new headline about there being a rare rebuke of Trump usually from Republicans and it's like it's not that rare if it's happening every single week here. Um, but yeah, I I I do think that for both the economic uh the economic side of things that you're touching on there and kind of the political optics sides of things, it's in their interest to nip this in the bud or at least fire a shot early to prevent this from, you know, growing uh a lot larger before they they kind of get their first word in. So, that's kind of what I see as the the motivating factor behind this specific statement. >> Okay. Hey, well with that we'll go ahead and wrap up this episode of the Power and Market podcast. Uh thank you everyone out there for listening. We'll be back next time with more. So we'll see you then. [Music]
The United States v Jerome Powell
Summary
Transcript
[Music] Welcome back to the power and market podcast. I'm Ryan McMaken, editor-inchief at the Mises Institute. And with me today are two of our contributing editors. We have Connor O'Keefe and we have Tho Bishop. And uh this week we've all written articles on this feud going on at the Fed uh this week from different angles, looking at different aspects of it. And the I don't know if if you've been paying attention, but Donald Trump doesn't seem to like Jerome Powell very much. That is the chairman of the Federal Reserve. But it's always hard to tell exactly why. And we'll look at that today. We'll try and really read between the lines, figure out what is the real reason that these two guys really, and I don't think it's just one way anymore. I think they genuinely both can't stand each other. Uh it strikes me more as kind of like of sorts a palace coup where two guys within the regime are are sniping at each other. But uh yeah, we'll talk about that a whole bunch today as well as really what this might mean for international aspects of of central banking and that we've also seen other central bankers come to Powell's defense. Uh but first though, let's talk about our first event of 2026 coming up in February, right? >> Yeah. The countdown is here. I am super excited. It is uh in Oklahoma City. First time we've been there in quite some time uh for an event on entrepreneurship beyond politics and we've got five great guests, none of which I believe are facing federal indictment for misleading Congress um at this time. Um those include Dr. Keith Smith, the great Dr. Dr. Keith Smith at the Oklahoma Surgery Center and uh the free market medical association. Caitlyn Long, one of my personal favorites who is a titan in the crypto space doing incredible things uh in the space of banking, Bitcoin, crypto assets, all that sort of stuff. Um, we also have, of course, our very own Ryan McMakin, Pereand, which would make sense since he's right there, uh, as a professor, and, uh, Timothy Terrell, who is, uh, always one of my favorites, always ranks very highly at Misesu lectures, always does a great job. Um, and so that is a great, great lineup for February 21st there in the Oklahoma City area. And a reminder that if you would like to visit the beautiful Mises Institute campus in Auburn, Alabama, we have a great opportunity in March and actually in uh in May, we've got uh Libertarian Scholars Conference followed immediately by Austrian Economic Research uh conference. If you like seeing scholarly output, if you want to see the latest cutting edge research in libertarian philosophy or Austrian economics, you can do that on March 19th through the 21st in beautiful Auburn, Alabama. or if you've never been able to make Mises University or if you're a Misesu alum and want to return and get a kind of re reive the glory days, Rothbart University is a firstofits-kind event on May 14th through the 16th where we try to bring the Misesu experience to our donors. So you can find all of this and many, many more. We've got a full lineup. We're going to San Diego. We're going to all sorts of places around the country this year. You can find all of that at mises.org/events. And if you're watching on YouTube, wearing a Misus Institute hoodie today. It's hoodie weather even in Florida. So, a reminder, we've got some great apparel at the Mis Institute bookstore. I was trying to see how many plugs I could fit in one ad read. So, uh I think that counts as five. >> Well done. >> Always be selling, guys. Always be selling. >> Well, let's talk about Jerome Powell. >> Yeah. >> And this was all over the news earlier in this week. like unavoidable if you were following financial news at all. So the the big deal is that Trump's justice department has launching a criminal probe against Jerome Powell, chairman of the Federal Reserve. And it all relates back to in name officially it's about Powell supposedly lying to Congress about the use of funds for a renovation project at the uh Federal Reserve. Now, we've mentioned this a little bit in passing a couple of times, right? We have no doubt that the Fed wastes money, that the Fed is corrupt. Uh but the reality, of course, is corruption is perfectly fine in Washington as long as you're in favor with the ruling regime and the White House, right? You only get prosecuted if you're making someone mad who is the decision maker on these sorts of things. Uh this is why no one has been prosecuted for Epstein, right? Magically, no one is guilty there. there's there's not even any real meaningful uh investigations, right? Gee, I'm I'm sure it's because everybody's so innocent. We know how it how it really works. And so, of course, you look at this and you're like, "Okay, so why is he really being prosecuted?" Uh what I thought was funny is that when a reporter asked Trump about it, Trump said, "Oh, I don't I haven't heard anything about the prosecution." Okay. like if there's if there's been a more obvious lie in the last few years of politics, I don't know what it was. Uh and of course, if you believed that, you should not be allowed to operate heavy machinery. I mean, you're just too stupid. So, I mean, this is it's so obviously something that is being orchestrated from the highest levels of the administration. Now, uh, this all came down earlier this week. And what was interesting is that the Fed almost immediately put out their own statement on it. They put out this little, I don't know, minute and a half statement from Jerome Powell, a little video talking about how just saying outright the real reason for the prosecution is that they want us to take orders more directly from the White House. Not even speculating. They're just saying, "Hey folks, the there's only one reason that this this uh this case is happening. It's because Trump doesn't like our policies and or I guess even more specifically, Trump doesn't like that we're not uh doing his policies the way he wants." So they put that out and that was just so clearly basically a declaration of war by both sides against each other. Uh obviously Powell was essentially calling Trump a liar for claiming that the real prosecution is uh because he supposedly lied to Congress on this talking about the subtext and all that. So it's just been a very interesting few days whether while they've been going back and forth on that. And so I think the question for you though is what's what's really going on here? Is it really just a disagreement about policy? I've I've come I noticed that I noted this also in a recent episode of Radio Rothber where I said as I've gotten older I have kind of realized that you can never discount just personal problems when it comes to these sorts of fights in Washington or any place where there's power uh where they could be fighting just because they don't like each other on a personal level. It could not even have anything to do with real policy that happens. Um, so what do you think? I mean, what what's the proper framing of this? And and also you could just touch on the issue of right are there any good guys in this fight and what what's the real motivation for this investigation? Well, >> first one of the interesting things I think about the way this entire story is being covered is that you I was reading number of articles on this and the one thing that almost never gets brought up is any real consideration of the actual facts. So, I was trying to figure, yeah, does the new Fed plan, the new Fed building, right? Yeah. It was like the $3 billion renovation. Like, is there actually a VIP elevator like is there actually a VIP dining room? Um, you know, are there behind I mean that the Fed has said, you know, come no, no, no, whatever. And so, so as best as I can tell, let's just start with from that. The best I can tell is that the best concrete thing I because some of this stuff, some of these proposals, some of these claims, and this started with like a Tim Scott, I think it was actually the one that that asked Pal about some of this sort of stuff. Um, the one thing where you could argue as a concrete black and white thing. Um, and those the extravagant stuff came from like a 21 report, a 2021 report about what this could look like. Um, the biggest thing and the per it was it was Anna Plan Luna from Florida, um, who I generally like. um she's the one from Congress that you put in a letter kind of you know sparking this if if one believes the official narrative there or played a role in that is that uh POW claimed during this testimony that the Fed has not been renovated basically since the Eckles building was first built in the 30s and that it's you know it it it it pours water in it's unsafe right all that sort of stuff and she pointed out like well actually the Eckles building has been renovated in the late 90s up to like the early 2000s and so there got you right there. This is a false statement and we can argue about whether or not it has a VIP dining room, but like this is the one concrete thing that clearly is whatever, right? Um, and so I mentioned that only because again like nobody else is really even covering considering whether or not he actually lied, right? Like everything else is focused on the on the intrigue, which is fun and the real story. Um, and and so I mean, you know, it it is undoubtedly true, right, that that Trump has been trying to bend Pal to his own way. He tried to do it the first time around with tweets. um you know this time you know it's obviously you know he's been trying to stack it with loyalists he's been a lot more hardcore um in in I think vetting the decision-making of you know I think Stephen Moren for example is different than the other Trump appointed people of the past um that that did make it to the Fed right I think he's more explicit and you see it even with votes Steven Moren um has been the one asking you pushing further on uh the recent interest rate cuts right um and so I I do think that I mean if If Trump could, you know, snap his fingers, he'd go to 1% interest rates, zero interest, zero interest rates right now. And Powell has been rather wanting to kind of maintain this sort of steady decline, right? And and you know, I think there's, you know, we've seen a slight easing, a taking off of the gas pedal of um, you know, you pow, you know, largely sort of, you know, back in the day was he was paying lip service after the transitory whole thing like, oh, we, you know, we we have to we have to we have to get serious. And it's it's been slow since then. And and and a big part of this though and this all comes down to and Connor's articles addressed this and and u that he had this week is that Trump threatens the entire facade, right? This this myth this notion of Fed independence that is beyond political motivations is the key cornerstone is the essential myth of central banking in you in America but really in and through the civilized you know higherend world right it it is it is the perception of independence that separates the the you civilization from from barbarism right if you if you take this sort of testimony seriously and and I think that is a big you know I I I do think that that is the The big draw here is that Pal doesn't want to be seen as being pushed around by Trump. He is, you know, he he he does not take the company line when it comes to tariffs, right? He is he is and and and really this is the big battle is Pal is trying to place the blame for bad economic performance on Trump's tariffs and Trump wants to wants to take push the put the blame in Pal's lap. Um, and so that I think ultimately as much as anything else, it's who should be blamed for the economy being something that Americans feel as not being where it needs to be. And I think everything stems backwards from that. And it's again, it's pretty incredible that you you've seen Pal you do this prop this I don't say propaganda campaign, but the sort of communication that we saw um is is unprecedented. And of course having a Federal Reserve chairman being under investigation being or the the the the focus of a probe is unprecedented. So this is these are unprecedented times all around. And my personal p perspective is I like seeing them fight go at it. U and so you know I'm here with popcorn but uh but I think that is that that's my perspective on what this week really truly means. Yeah, Connor. I mean, I am I continue to see people in the uh financial world still perpetuating this idea that uh this is some sort of new groundbreaking thing that the president is doing trying to influence policy. Um I I I don't think that's actually the reality of what's been going on the last 50 years, but I could be wrong. I mean what what's the reality of the political influence uh that is brought to bear upon the Fed, >> right? This is um as though kind of pointed out what I see is the big overarching dynamic here is kind of what I'm calling an optics battle and yeah I I would definitely recommend people look especially uh Jonathan Newman last year he gave a talk and um he wrote up an article I think for the magazine laying out the fact that Fed independence is a myth. It goes back uh specifically to this 1951 accord that was it's kind of framed as the beginning of this era of Fed independence that we're living in right now. But it wasn't. They just described themselves as independent while continuing to help the Treasury fund all the all the wars and programs that they wanted. But as though pointed out like that that um branding of this independent kind of governmental kind of non-governmental entity that is like wisely uh guiding the economy is so crucial to their power and that really is what's under threat with Trump kind of acting the way he's acting. And I think it's important to point out that it's not really a policy thing at the end of the day. like it they Trump could be pushing for the exact kind of policy that the Fed would want to do and it would still be a problem from their perspective because they don't want to have any of the optics of the president, you know, uh ushering them one way or the other when it comes to policy. Now, that being said, the Trump does want interest rates to be cut faster than it seems the sort of central banking establishment want to cut them. And that's kind of a whole other interesting dynamic there. But at the end of the day, even if he was completely aligned on policy, they want him to shut up and stay away so they can continue kind of pushing this false narrative that um there, you know, this false brand of this kind of independent, wise, non-political, nonpartisan central bank. And so I think that what we saw from Pal was kind of not maybe not the opening shot, but a major escalation from that other side to try to push back and try to frame Trump as this like this diversion from the status quo that he's kind of bringing this whole idea of a political Fed into like possibility for the first time ever. I think that's going to be the the propaganda that we're really going to be fed over the next couple years or, you know, however long this this dynamic with Trump specifically uh continues. Th this was kind of a a major escalation on that front from their from their perspective. >> Yeah, this is just the the smallest difference in real policy here where they you could imagine a different Fed with just uh someone like Janet Yellen in charge of the Fed who even when they the the the career of Janet Yellen at the Fed was just to say over and over and over again that the economy is strong and good and great and we're keeping interest rates at basically 0%. at a quarter percent at 25 basis points. That was the great lie. The great gaslighting was the economy is great but we have to keep interest rates close to zero >> because inflation's too low. That was her whole thing >> because inflation's too low. >> God forbid your your life gets cheaper and so we have to get more inflation. And I I can't see any reason why Trump wouldn't have loved that sort of thing. But now we're looking at oh gee uh interest rates instead you know we're talking about the t the target policy interest rate as a federal funds rate which does influence other especially short-term interest rates but also even long-term in a broader way and a a more indirect way um under 4% now I mean what's the complaint I mean through the entire second half of the 90s it was up over 5% most of the time this is not a low interest this is not a high interest rate regime. These guys acted like it's Paul Vulkar in there and it's 1983 or something. It's just completely untrue. This is a easy money uh regime and and you can't go just off interest rates, right? Because on top of the targeted trade is the Fed's huge portfolio where they're holding 8 trillion bucks worth of treasuries and mortgage back securities on the books. And that all contributes to fueling asset price inflation toward keeping liquidity in the market. So when you take all that into account, you're looking at uh even more monetary inflation. So, this idea that let's just absolutely destroy the idea that there's some sort of uh hard money conspiracy going on the Fed because that just obviously is not the case. >> Well, the problem is that 4% interest rates seem massive when the Fed got the economy addicted to, you know, essentially 0% interest rates. And and here I'm I'm going to give some friendly advice to the DOJ. Um, again, I'm I'm of the case like I it drives me crazy when I see like there there are certain types of like institutionalist libertarians and some conservatives out there who are who are you appalled at this entire idea. No, I want more investigations. I want more indictments of Fed chairs in general. I'm I'm I'm pro-indict of Fed chair as a general rule. Um, you should have to prove why you shouldn't be is kind of the way that I I would like to see this entire process go. But but here here are some things that should be also investigated like like you know it was a lie to Congress when uh Jerome Powell claimed that inflation was was transitory during co right it was a lie to Congress when Ben Bernani right was up there during the financial crisis saying oh we we can restore normalization of the balance rates whenever we so choose you know as long as it doesn't go on indefinitely we're we're perfectly fine right and even though there there has been a slight unwinding of the balance sheet in the last couple years or so we're we're going right back up right so this entire idea that that we can we can resto restore restore normalized monetary policy was another lie. Um, you know, there's there's plenty of bangers that you can also get from from Yellen, from from Greenspan. Again, we we've had a a good run now of Federal Reserve chairs that have engaged recklessly and the the economy got addicted to it. And so, people saw 0% interest rates. They saw, you know, 3% mortgages as the new norm. And everyone's responding from that. And and Trump again was fas I remember Trump back in the campaign trail in 2016. And he was like, "Yeah, like you know, normal people are getting screwed by low interest rates as a as a as a building man. I I love it, but like normal people are getting screwed." He could identify he could he could actually, you know, for for Trump like eloquently talk about the bubble that was existing, but he doesn't want to be the guy in charge of it. So he's like, "You just just keep keep reinflating this baby." And but that's the problem though is again like people acting as if like what what is what has been made also clear through this entire process through this this last week news cycle. I mean again I think making this explicit rather than implicit has some value is that people essentially view political uh independence as a lack of any sort of political accountability that that the Fed share must be a beyond reproach regardless of what they do because otherwise it is making things political. Now is this the pettiest little thing you can find? Sure. um you know, but still like that is ultimately what is driving the way that this is viewed and that breaking away that facade that that perspective of the Fed is positive regardless of what one might think about what comes next. And I think that's that that that this is some that's the I think this is part of a much larger story of you know Trumpism American politics is you know you may not like the egg the omelette but break the breaking some of these eggs breaking some of these narratives you know again you we should not be you know bemoning the loss of credibility and perspective on these great American institutions bringing these things down the mud is very positive if your opposition if you recognize just how bad you know status quo Washington has been for decades. Yeah, it's not even true in theory uh in statute anywhere that the Fed is totally beyond the reach of the federal government's ability to reign them in, control them, tell them what to do, change their mission, uh pull up the um the chairman and force them to testify. All that stuff is in the statute, totally within the realm of Congress's control. The only distinction, and this is a this is an important point that Alex Pollock has made more than once, one of our senior fellows, is that the only distinction between the usual uh executive branch agency and the Fed is that they're supposed to be insulated, at least in theory. And whether that's even a good thing, whether that's even possible uh if you actually adhere to the letter of the US Constitution, is it possible to create this special sort of executive uh branch style entity like the Fed and not have the executive branch exercising control over it? The the federal courts have actually been debating that issue, but at nowhere has there been the claim by anyone who's actually analyzes the statute that the Fed can just do whatever it wants. the the the Congress can eliminate the Fed. They can defund the Fed. They can or completely change the board of governors. They could do anything that they want to the Fed. And Congress is a political institution, guys. I mean, I just So, this whole idea that the Fed is independent and doesn't answer to the elected government. Completely untrue. untrue on every single level except in the imaginations of some people who are out there to push uh the Fed being able to do whatever it wants. So obviously let's just move beyond that. It's always been nonsense. The only really debate is should the executive branch be able to exert political control? No one denies that Congress can do so. That's it. That's the whole extent of of the debate. So spare me all this stuff about how the Fed should be able to do whatever it wants and no one in the elected government should be able to say anything about it. >> I think one reason this uh fiction has been able to stick around for so long is because people like to swap uh non-political and nonpartisan um out for each other. that really at the end of the day like the reason the Fed can appear non-political is because both parties have been very behind it and its mission and the way it's carried out its mission in the past. And so it's been kind of easy to spin it off as as that kind of institution. But I think it'll be very interesting. I'm fascinated to see how it's going to play out once Pal's term is up and Trump gets a chair in there. I guess in May is when that's going to happen. Um because like if you just look back I mean I haven't been watching the Fed for that long but you know I could kind of look back in history and I can't think of a time where there was like a Fed chair who was basically against like the rest of the FOMC. I think like like this every time that it's always about um like it's like this culture of agreement and they're always coming together and like they won't even really put something up to a vote until they're confident that it'll pass. And if that all goes out the window and we start getting some chaos in there with like a a Trumpapp appointed basically attack dog in there, I I mean like there are just there are so many ways that the Fed could potentially be desanctified as we're kind of talking about um in the next couple months. And of course I would be like 100% on board with all this if Trump was pushing for a better monetary policy. Fortunately, he's pushing for a worse monetary policy which like really sour this whole thing. But there is still potential for some real good to come if um this fiction is exposed as a fiction and the chaos of some real battles happening um on the FOMC in the near future. That could be one way of getting there. >> I think I saw Bob Murphy, our colleague on on Twitter X this past week and and he was debating someone like you know he was so was trying to argue like oh well the Fed chair doesn't set interest rates like it's it's a vote with everyone else and he he asked him like well has the Fed chair ever not gotten the interest rate policy that they want? I was like, "Oh, yeah. It happened once and it happened like you know like 1930s like I mean this is he resigned." Yeah. >> Yeah. Yeah. And then then they named a building after then may which may or may not have a VIP dining room but but again just going to show again like you talking about like Yeah. Oh, Congress. This should be the the thing is like I mean like back like one of my favorite little anecdotes is like during 2008, right? They created these maiden lane entities like these these little side corporations to to help deal uh you deal with with uh international you take up international assets and things like that which which they they went they they had to create these these these new entities because it was very well established that they couldn't do it under the current charter. They did not inform Congress prior to u you they of course emergency powers, right? So like oh well it's emergency we've got the power to do whatever we want, right? And and and did anyone in Congress really really care like outside of Ron Paul and Alan Grayson like you know there there was a there was a small actual like that was the only time we got like anything resembling a Fed audit is that there was like a a timesensitive fed audit put into DoddFrank because Alan Grayson and Ron Ron Paul were doing a you know teaming you tag teaming that from from different sides there. But but like again congress we we know congress is not going to do anything like there there's there's the occasional push you know the fed will get passed by the house every year the won't do anything u you know there there was a brief discussion serious discussion with Jeb Hinserling who was financial services chairman um my old boss u but you about doing a rules-based monetary policy that's not going anywhere you know Congress has is you know they they'll they'll take the occasional uh uh you know duking it out on occasion uh during Fed conferences for show like Elizabeth Warren will do this from one side. You'll have, you know, the occasional person in the Senate that'll do it from the other. Um, uh, the Kennedy from Louisiana is usually pretty good at that, but there's nothing there's nothing further. They'll write a firmly stern letter, you know, right? But there is no congressional oversight of what the Fed does in any sort of meaningful way. There's never going to be a serious audit of the Federal Reserve. The Senate won't allow it. And so again, like the idea, so so again, Congress is clearly not doing this job. again whether or not should be in the executive branch, but like the Congress has been in all in all facets in all practicality has been able to do whatever the hell it wants for quite some time. Um, and it's good for, you know, some of those toes to be stepped on. >> I I would bet though that prior to like, I don't know, seven, eight, nine years ago, nine out of 10 incoming members of Congress don't even know that the Federal Reserve existed or what its purpose was and that that persisted for years, even while they were in Congress. I would say maybe it's down to 50%. Now that and I wonder if you pulled if you gave a test to all members of Congress and asked them what is the Federal Reserve and what does it do? The members who don't sit on any sort of finance committee or banking committee or they don't have the slightest clue, no idea. And so yeah, they don't even understand it. They can't imagine how it relates to them. And I don't know if people still believe this, but I remember when I was little, there was kind of this idea that members of Congress were smart and wellinformed that they had some sort of like special knowledge. But of course, once you meet some of them and interact with them, you realize they have no actual skills other than how to get elected, how to get nominated, how to raise funds, and how to get reelected. like they except for the small percentage that are like surgeons or something very few of them have any practical worth something knowledge at all and so why would they know anything about finance uh and the Fed they don't >> well and it also true so again you know on the house financial services committee like the there's a the guy you know so so you have these different subcommittees and you have like your your top policy director right um I remember that the housing policy director was caught up in the countywide the the countrywide scandal, which neither here nor there. But the the guy that was in charge of the monetary policy guy, he didn't care about monetary policy at all. He got mad at the Ron Paul people who as chair of the domestic monetary policy subcommittee, you know, they get to have uh you know, people there. He got mad that they, you know, that they wanted to do the job. Like his idea of a monetary of a of a of a you having Bernanki in was bringing the office talking about Nat's baseball and then going on his way. Like he had no he had no interest. He he liked mint bills. Like what was what was driving monetary policies? How quickly could you pass a commemorative coin? Like that's what that's what monetary policy means to your average member of Congress. It's nothing none of the rest of this stuff. >> And I think what's interesting is and I was doing kind of a deep dive when I was writing this article. Um like that is a purposely constructed state of affairs like this was all if you just look back the entire history of the Fed. I mean it's more famous now like how it was founded like the meeting at Jackal Highland. It was very secretive from the beginning. I went down a whole rabbit hole about the um architecture of the uh Eckles building just because it was it was a lot more interesting than I expected it to be. And of course, it's in kind of the news right now with the the renovations, but it was basically like in the 1930s more power getting concentrated in the Fed board working in DC rather than the regional banks. And they were all working out of the Treasury building. And you could just see like at the time they were like this is not great because we're supposed to be this kind of like independent um non-political entity. And there they are working in the treasury building with the administration there. And that was like why in the 19 I think it was 34 I think when um they authorized this new building. And then they they put on a whole like competition to find an architect. And you could see in the directions that they're giving these architects that they're like very clearly trying to concoct this very specific way that they want the Fed to be like thought of through this building. and they're talking about how they want it to be very governmental in character but also very like different than the other buildings you'll find in the National Mall. the winner he I guess the I don't know a lot about architecture but it was a strict classical design basically like the foundation or the structural uh like skeleton of the building is the same as kind of these classical buildings like the Supreme Court the Treasury building but they sort of strip out all the columns and ornamental stuff and it's like all of this is very purposely put together to really feed this specific idea I think of the Fed they want to be thought of almost like this economic priesthood that's like quietly kind of toiling away in the heart of Washington that people aren't really, you know, concerned about. There's not any of the drama associated with the rest of the government. And that is like a very purposely put together, I mean, I'm calling it branding, but that's what it is. And so this whole idea that like, yeah, members of Congress is it's sort of absurd there because they're supposed to be the ones steering the ship um in DC, but for the entire country, most people don't really think about the Fed or really haven't really thought about the Fed. I think it's it's gone up a bit a bit since really the Ron Paul years and I think it's going to go up a lot more in the coming months if it really starts to become a political battleground. But that's all very purposely put together and that's sort of what is under threat right now as Trump is making this more of a kitchen table issue and that's what I think they're I my theory is they they figured that there's no way to really put the genie back in the bottle. So they're going to try to really push the idea that Trump is changing the status quo. it was all calm and working perfectly fine until he came in. He's messing all this up and then once he goes away, however long that's going to take, they can kind of get back to it. So, I think that's going to be sort of their strategy going forward. >> Well, I think in the end we will see uh how little real difference there is among anybody when it there is an obvious crisis that takes place. Um there's there's an interesting concept in his people who look at the history of the state uh and state formation, real state power, and really just does constitutional government work and that sort of thing. And and a point they often make is you only really know who's running things when there's when you're in the state of emergency. When you're in the state of emergency, that's when the people with the real power assert their power and they take over. And all of that stuff about controlled government, all of that stuff about separation of powers, all that stuff about checks and balances just goes right out the window and you find out who's really in charge. And I mean, how many examples can we point to? I mean, basically anything. Anytime there's like a serious war, uh, that's just what always happens. That's what happened during COVID. The executive branch basically just started bossing everybody around. Congress couldn't meet in person, they claimed, and then just started throwing money at everything and gave the president whatever he wanted. And and then, of course, we're in that state now with war. All they have to do is claim that there's some that China's going to take over Greenland, China's going to take over Venezuela, give me whatever powers I want. You find out what's how this country really works in cases like that. in the constitutional doesn't mean anything. And the same is here. How would policy, monetary policy, fiscal policy been any different if um John McCain had been elected in 2008 from the policies? So would the McCain policies have been different in any way from the Obama policies in that period? No. Absolutely zero reason to believe that. It would have been the same uh stimulus quote unquote driven fiscal and monetary policy would have happened. It would have been a continuation too of what the Bush administration was doing in terms of crazy bailouts and all of that sort of stuff. That would have all continued if Gore had won in 2000 instead of 2001. Would there been any difference in uh the response to 911 as well as to the recession of 2001? There would have been slight different in flavors, but we all know that it would have been essentially the same thing. It would have been Greenspan would have been handed whatever power he wanted to do and he would have done it. COVID, great global financial crisis, 911, uh the dot bust, the policies are all the same no matter who's in charge because it's declared to be a state of emergency whether in fact, literal fact, or uh in the rhetoric used on Fox News or whatever. So then the regime just does whatever it wants and you'll find out that the bankers are in charge and that whatever big rich guys want bailouts get their bailouts. So that's what happens over and over and over again. And so that's what's going to happen next time. And the the the bad thing is that there's going to be the normal people are going to feel the brunt of the downside of that all the more this next time because things are slowly spiraling out of control in terms of price inflation, sort of declining standards of living, uh in terms of the US's geopolitical situation. All of that is getting worse and worse. But as far as the regime is concerned, there's no reason to change anything. just the exact same policies. We'll weather inflation just fine and screw everybody on fixed income or on the low end or first-time home buyers and all of that. Who cares? All that matters is that we, the ruling oligarchs, get our free stuff when the crisis hits. So, that's what we should expect. And it's absolutely naive and fantasy land sort of stuff to think that Trump would have some sort of significantly different policies from what the Fed would do on its own. in case there was any sort of significant financial crisis. So, a lot of this just seems like uh I don't know, is this the right metaphor? Rearranging deck chairs on the Titanic. I mean, it makes no difference. These are people like playing around with little aesthetic changes while there's much bigger things happening. And then when the real crisis comes, they're all going to be in agreement anyway. And we can know this. We can predict this. They're all going to close ranks and be in agreement when there's a real crisis. They just have the privilege, I think, of disagreeing and having their little petty disagreements among themselves right now. And that's all we're really seeing. At least I don't know. That's my uh that's my feel for the situation. Uh because I have absolutely zero confidence there's any real principal difference that anybody is willing to expend any actual political capital on uh anything other than what we already know is going to be the easy money, highly inflationist response to the next crisis. And I think the biggest change that will happen from this is is personnel and not policy. I mean, everyone's inflation is during a during a crisis. But I I'm very interested to see whether Steven Moren gets reconfirmed this year because his term was a was a special kind of end of end of term things, right? So, he's get get revoted in by the Senate this year. Um, you know, does Pal stay around even if he's no longer fed chair because his his board his term on the board outlasts. I could see Pal refusing to go now, right? Um, and so I I I do think this is where that reflexive institutionalist senatorial Republican, right? You know, it's it's people like Tom Tillis, um, who's not running for re-election anyway, so there's nothing Trump can do there. It's the Lisa Marcowskis. It's it's those sort the Suzanne Collins. you know, um I I think this because again the reverence and all this sort of stuff, it could lead to some personnel changes where Trump even has less in influence on the Fed when it comes to the bodies in the room, which could have, you know, longer standing periods, right? A longer influence down the road. I I could very easily see the Senate just saying, "Nope, your people are gone. You know, you're you're going to you're going to put people that we're going to accept and there's there's no more favors here." Again, what that means in a crisis is going to be very very little. But in terms of longerstanding influence on the Fed through personnel, I I think you're going to see a much tighter filter be used by the Senate's gonna backlash because again, how dare you go after, you know, good old Uncle Pal. >> Yeah, I think there's um there's no question that you're right that during a crisis they have the exact same policy. I think that uh where you're going to find maybe a little bit of difference is before the crisis hits. And the way I kind of look at this is you sort of hinted at the ratchet effect, a topic we've talked about a lot here, that it's really during periods of crisis when government grows a lot faster. Um, and the reason for that is not it's like it can kind of sound like it's almost like a an inverse of like when people blame inflation completely on greed and it's like, okay, why did they suddenly get greedy at this point? It's not like during a crisis the government is suddenly a lot more interested in power grabs. it's that during a crisis they can get away with power grabs that they wouldn't be able to if there was not a crisis. And so I think um I do believe that the main reason that they're really freaking out about Trump is optics. But I do think that they there are there's a worry that Trump wants to basically bring a crisis level monetary policy into, you know, he wants to start doing that before there's actually a crisis. And I like so much of this is about them doing as much as they can get away with. There's no question the sort of monetary establishment are fans of easy money, but they don't want to push it too far when things are not in a crisis kind of chaotic state. And so I think there is a little bit of fear that Trump will come in there if he actually really takes control essentially starts uh flooding the economy with easy money before, you know, it's really something that they could get away with. People start waking up to the effects of that. Maybe there's some serious inflation there. I think there was a little bit of anxiety around that, but like what was notable to me with this POW stuff is the markets didn't really freak out about it. It was mainly a kind of media freak out. And that signals to me that this is more the media personalities, the political figures trying to kind of um jin up panic rather than them just reporting on panic. So I do think that the optics is still kind of the the most important dynamic here. But I I do think it's important to point out that like yeah, just because they might be a bit worried about Trump being too inflationary, it's not because they're against inflation, they just don't want to push things too fast uh that in in a way that might risk their power basically at the end of the day. >> Well, that kind of relates to our final issue here and I just kind of want to get you guys opinion on what you what you think is behind this. Uh so on January 11th, the central bankers of the world united to express their support for Jerome Powell. This is a short statement. I'll just read it to you. It's uh says internet. This is posted at the European Central Bank's website. So ecb.uryuropa.ed.eu. >> Where else would it be? >> Of course. And this the statement is what it says. International central bankers on the statement by Federal Reserve Chair Powell. Uh this is the the little video that Powell made in response to the the the Trump uh investigation. So the central bankers of the world state, "We stand in full solidarity with the Federal Reserve system and its chair Jerome H. Powell. The independence of central banks is a cornerstone of price financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence with full respect for the rule of law and democratic accountability. Chair Powell has served with integrity, focused on his mandate, and an unwavering commitment to the public interest. To us, he is a respected colleague who is held in the highest regard by all who have worked with him. Um, well, I mean, Trump's worked with him. He doesn't hold POW in the highest regard. So, I mean, wrong. All right. So, and then signed Christine Lagard, Andrew Bailey. Oh, Christy Lagarda, the ECB person, Andrew Bailey, Bank of England, and then it just goes down. You got the uh the Swiss Bank and Denmark. You forget that some of these countries still have their own currency. U Swiss National Bank, uh and on and on. Boy, Iceland, a island of 300,000 people. Uh they're on board. And oh, Bank of Canada's way down the list. I wonder if this reflects Oh, it's it's not even in alphabetical order. So, I don't know how they determine who's higher on this list. Uh, but so, okay, so bankers of the world have they're in solidarity. This reads like a little bit like something that would come out of like the pullet bureau or like the u the the second Soviet. Uh, so I mean, what does this mean? Why why do the central bankers of the world feel the need to intervene in what is allegedly of course we know it's not a domestic American institution? Right? The reality of course as has been obvious since at least the '9s is that the central bank has huge influence in terms of how other central banks inflate in terms of how they set their policies. And just one thing I would throw out there just to show the way that the Fed has to coordinate with other central banks and why other central banks want to to coordinate with the Fed. Just imagine if the Fed really did let interest rates go way way up and that the US was suddenly paying way way more interest on its debt than say European government bonds or uh English government bonds. You can see how that would be very attractive to a lot of investors who were looking to get better returns on safe government bonds. that could be problematic then for European governments that are trying to issue debt. Wouldn't that then drive up perhaps um the the the need the drive up yields for other governments? That's something to consider. Uh and then we can see historically as well that uh the US Brendan Brown's done a lot of good work on this too. The US is always coordinating and has been uh ever since uh the early early days of course coordinating with the UK. But just one recent example is the Plaza Accords which was a deliberate attempt to devalue the dollar to make other countries happy and foreign central bankers were very interested in that. And then look at where the 2% inflation target just magically appeared in the late 1990s and early 2000s and all of the central banks fell into line on that where the European Central Bank and the US just started talking about it in the 90s. It was Janet Yellen who really started to push it. And then in the early 2000s, it becomes European Central Bank policy. And then the US central bank, which had informally been following the 2% inflation standard for a while, formally adopts it. And all along, right, the idea that these people aren't talking amongst themselves, that they're they're not coordinating is absurd. uh obviously and I don't know if they just are so freaked out by the idea that one of their one of their kind uh is being prosecuted that they're trying to scare off their own governments from doing anything similar. I don't know. I I have no real theory here except that this is just an illustration of how yes, of course, there's coordination among all the central bankers. Uh but that's is that's a separate question from why they feel the need to issue this statement. I I don't know. What do you think though? >> Central bankers of the world unite. Um because of the cherished the deep standing love for democracy. Like that's that's first thing I think of is central bank policy as some great democratic representation of the people. Um yeah, I mean I have a feeling that that none of those people were particularly big Trump fans prior to this. I I think it's always great for them to, you know, make make themselves feel important and and I think, you know, Powell has been a he has been a a a good partner to work with. Um, and you know, what whatever impact that has on policy as a secondary aspect of it, but you know, this is this is, you know, a great illustration for one thinking like any of this stuff really I mean matter like should matter at all um to anyone else is is itself quite quite amusing. But again, that's exactly what I expect from a document on the ECB's website. Yeah, Connor, I mean, does this does this tell us anything new? Uh, is there like a political aspect to this that we're missing? Maybe there's domestic concerns. Are foreign central bankers concerned that they might face something similar? What do you think? >> That's sort of what I was thinking. Like central banking is a worldwide scam and if one population starts to kind of wake up to that, then there's risk that that'll spread, especially in our like hyper globalized information environment these days. There's also just like and I think this was a little bit more of a dynamic in Trump's first term, but it feels like people in these kinds of positions are always looking for brownie points and the eyes of kind of the anti-Trump um people. So, if you can kind of put a a statement like this together, like it definitely probably makes them feel good. And um yeah, it's like they're getting all these this praise for issuing a rare rebuke. That's become something I I feel like every single week I see a new headline about there being a rare rebuke of Trump usually from Republicans and it's like it's not that rare if it's happening every single week here. Um, but yeah, I I I do think that for both the economic uh the economic side of things that you're touching on there and kind of the political optics sides of things, it's in their interest to nip this in the bud or at least fire a shot early to prevent this from, you know, growing uh a lot larger before they they kind of get their first word in. So, that's kind of what I see as the the motivating factor behind this specific statement. >> Okay. Hey, well with that we'll go ahead and wrap up this episode of the Power and Market podcast. Uh thank you everyone out there for listening. We'll be back next time with more. So we'll see you then. [Music]