"Will No One Rid Me of This Turbulent Priest?": Trump’s Fed War

Donald Conn, the former vice chair of the Federal Reserve, recently told the FT Economic Show the story of how during the global financial crisis, Ben Bernani used to joke that his memoirs would one day be titled Before Japan Opens. The joke referred to the Fed's frantic weekend efforts during that period to get emergency announcements out on a Sunday night aimed at stabilizing global markets before the Monday morning bell in Tokyo. Historically, these Sunday night announcements are quite rare because the Fed values stability above all else. Unscheduled weekend announcements are the sort of thing worth worrying about as they tend to be about terrible situations.

the 2008 collapses of Bear Sterns and Lehman Brothers, the emergency liquidity injections at the onset of the pandemic in 2020, and the regional banking crisis a few years ago that claimed Silicon Valley Bank amongst others. Under normal conditions, investors don't spend their weekends worrying about what's going on at the Fed. So, when they hear there will be a Sunday night announcement, they sit up and take note. The recent silence from the Fed was shattered last Sunday.

But this time, the emergency was not a failing bank or a credit freeze. It was a direct legal assault from the White House. Jerome Powell, the datadriven Fed chair appointed by Donald Trump in 2018, appeared in an extraordinary video message announcing that the Department of Justice had just served the Fed with grand jury subpoenas. The threat was a criminal indictment over Powell's congressional testimony regarding cost overruns in renovations of the Fed's headquarters.

Powell did not reach for the usual polite central bank code. He stated plainly that the building project was a mere pretext. The real motivation, he argued, was retaliation, a criminal cudgel being used because the Fed had refused to set interest rates based on the preferences of the president. It was a moment of profound clarity.

Powell was sounding the alarm that the independence of the world's most important financial institution, a cornerstone of global capital markets, was in immediate jeopardy. The environment leading up to this announcement has been quite unusual. While the stakes in finance are high, the silence from corporate leaders has been quite telling. An article in the Financial Times this past Thursday highlighted the pervasive fear amongst corporate leaders.

It quoted the CEO of a major Wall Street firm ...