It may seem early to make this call, but I feel certain: if you read only one newsletter this year, this is it.
While I was watching the Birds get housed by the Niners, my Bloomberg feed was blowing up with news that Jay$ had posted a video in response to grand jury subpoenas. Specifically, the DOJ is threatening criminal indictment of the Federal Reserve Chair over his Congressional testimony last summer regarding the Fed HQ renovation.
North Carolina’s own Republican Senator Thom Tillis responded almost immediately: “If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve there should now be none.”
Even worse than the Eagles loss was the fact that this news totally rendered worthless a pretty great newsletter! So at 8pm last night, cranky AF, I popped up my laptop and started over. Ranger Batt taught me to do the hard right over the easy wrong, and for the first time in its 112 year history, a sitting Fed Chair has been threatened with criminal indictment. Even if the Eagles didn’t bring their A game, I will.
But the worst part? I had this awesome write up about the exciting LoanBoss relaunch with a bunch of incredible new features. Instead of talking about an existing moment in our history, I’m writing about unprecedented events at the Fed.
Speaking of unprecedented…Trump also posted an image of himself as acting President of Venezuela…
Last Week This Morning
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10T: 4.16%
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2T: 3.53%
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SOFR: 3.64%
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Term SOFR: 3.67%
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JOLTs Job Openings fell more than 500k
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Nonfarm Payrolls: 50k actual vs. 70k expected
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Unemployment Rate: 4.4% actual vs. 4.5% expected
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If Trump keeps doing things like capping rates on credit cards and turning on the QE machine, he might find himself the mayor of NYC
How Trump Can Influence Rate Decisions
In the short time I had to research this, I can find no precedent of a sitting Fed Chair being threatened with criminal indictment. In fact, the closest thing I could find was…drumroll please…DOJ subpoenas of Board of Governor Lisa Cook last year. If you’re willing to look outside the US for examples of countries prosecuting their central bankers, Russia and Venezuela are at the top of the list, with Zimbabwe rounding it out…
First things first…the DOJ is fully entitled to investigate and prosecute Jay Powell if they have concrete evidence of wrongdoing. For purposes of this writing, I’m going to assume innocent until proven guilty. Powell has made mistakes, but I’ve never seen a single thing that made me think he was shady.
Let’s start with a section I actually got to keep from the first version of this morning’s newsletter.
As for influencing the dove/hawk spectrum, there are two things that are more important than who the next Fed Chair is:
- Is Lisa Cook ousted? If yes, Trump gets to appoint her replacement. Oral arguments to the Supreme Court are on January 21, with a ruling expected in May or June.
- My gut says the Supreme Court allows Cook to remain and cites the Fed’s quasi-private funded by banks org structure.
- Does Powell stay on the Board after May? If no, Trump gets to appoint his replacement.
- My gut says Powell leaves the Board. He respects tradition.
My year end newsletter had an extensive section on how Trump might try to influence the Fed this year and #1 was removal of the Fed Chair. But I also noted that Trump had conceded Powell’s ouster wasn’t going to happen. Plus. Powell would be gone by May anyway, right?
I also noted that Powell’s decision would be influenced by his perception of Fed independence.
Trump had been pretty quiet about Powell lately, and I figured he was trying to avoid giving Powell a reason to stick around. So much for that.
Here’s the link to Powell’s video post last night: Powell Claps Back
From the video: “Those are pretexts,” Powell said. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.”
Powell added, “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
That does not sound like a guy that is about to go gently into that good night.
Jay$, and the Fed as a whole, need to be off limits. Every president is entitled to leverage the bully pulpit, but this is too much.
I led off this writing with a response from Thom Tillis, but it was via a repost from renowned economist Claudia Sahm. Her point is a key one – “This matters. If the Senate does not confirm a new Chair, Powell stays on as Chair.”
Tillis added: "I will oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved." In the least shocking news of the night, Tillis had announced last year that he would not be seeking reelection in 2026…reminds me of Trump 1.0.
The current Senate split is 53 Republicans and 47 Dems, so the Tillis vote alone isn’t enough to hold up a confirmation. Two more possible defectors would be Alaska Senator Murkowski and Maine Senator Collins. But JD Vance would still have a tie-breaking vote…so one more Republican would have to withhold a yes vote.
In a long list of Trump-shooting-himself-in-the-foot examples, this has to be up there for the weirdest. Powell is a lame duck the minute Trump announces his replacement…and his term expires in May…markets like Powell…I don’t get it.
Actually, if Trump is that itchy to fire someone, I heard the biggest fan of higher rates is Eagles OC Kevin Patullo…
Remember earlier when I pointed out that the last Fed Chair to serve out his remaining term after losing the Chair? It was 70 years ago. Marriner Eccles – the 7th Fed Chair. You don’t even have to fact check me to know that name came from the Great Depression era.
Eccles was known for fighting for Fed independence. He went to the mat with President Truman, who was pressuring him to lower rates.
He was so respected for standing up to the president in the 1940s that in 1982 they named a federal building after him – The Eccles Building.
You know this building, but you probably don’t know it by that name. You probably just think of it the same way I do – The Fed Building.
The very same building that houses the Fed.
The very same building under renovation…the renovation the DOJ is indicting Powell over…
Unprecedented.
Rates
Again, this has literally never happened before, but I have to think rates tick up while the dollar drops.
Week Ahead
I originally highlighted inflation and the Supreme Court ruling on tariffs, but now it has to be the DOJ news.
Please do me a favor and check out some of the exciting developments at LoanBoss. I hate self-promotion, so I wouldn’t be bragging about it if I didn’t think it was worth your time. We’ve had explosive growth and the #1 thing we hear on a demo is, “Wow, this does way more than I expected.”
My guy Warren Min even said, “I only did this demo as a favor to you, but I am blown away. This is a game changer.”
Buckle up everyone.
