The Fight Over Fed Independence Just Got Taken To a Whole New Level

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, I feel like we're, what, about 10 days, 12 days into 2026, and how many emergency episodes have we recorded so far? This is gonna be our fourth.

Joe Weisenthal (0:34)

Our poor producers, you know, and they keep happening on weekends too, which is not, the big developments keep happening on weekends, but I think it's going to be a busy year for us.

Tracy Alloway (0:46)

Ah, sad, but I am sure you are correct. I mean, from the news business perspective, there's certainly no shortage of news flow, and that can be a good thing, but it is hard to keep up nowadays, as you mentioned. So-

Joe Weisenthal (0:57)

I know, I want to do a Clawed Code episode. When are we gonna get around to that?

Tracy Alloway (1:02)

So this is the second weekend of 2026, and the news this weekend is that Fed Chairman Jerome Powell said that the central bank has been served with a grand jury subpoena from the DOJ, threatening a criminal indictment. And this has to do with the renovation of a Federal Reserve building, which Trump has made noises about before. Specifically, apparently the wrongdoing for this particular indictment or potential indictment is that Jerome Powell might have lied when he gave his congressional testimony back in, I think it was June of last year, but as we said, our timelines are starting to all melt and blur into one. But basically, this is the next big escalation in the Trump versus Fed fight.

Joe Weisenthal (1:49)

Yes, exactly right. And I think there's a few interesting things here. I mean, obviously, Jerome Powell is on his way out already as Fed chair, though he could stay on the board and that's interesting. And now I think there's people are thinking, well, maybe he's gonna stick around more because of this. And then the other element too is what I would say is like one of the most direct statements in response. Yesterday evening, Jerome Powell put out a video and a statement in which he said that this subpoena is really about the administration's frustration with interest rate policy. And of course, Powell has been very diplomatic with all the criticism, really not commenting at all about all of the various critiques. We're just going to do our job. We're going to do the job for the American people, et cetera. Basically, deflecting any questions on the politics surrounding. And this is a major break.

Our colleague Cameron Krause, as he put it, this is the straw that broke the camel's back. And he's being more direct than almost anyone else in public service or government, et cetera, and saying, this is essentially extortion. This is intimidation. This is thug behavior. And this is not how he's talked about the pressure in the past.

Tracy Alloway (3:04)

Right. And if you watch the video, I mean, Powell has annoyed grandpa that has had enough of all of this nonsense just written all over his face. Bad weekend for Powell, by the way, because the guitarist from his favorite band, Grateful Dead, also died. So not a great weekend for Powell. But obviously, on a serious note, we need to talk about what all of this means, how it fits into the ongoing tensions between the central bank and the Trump administration. And who better, who's the man that we always call when this happens, and I guess it's happening more frequently nowadays, but we always call Lev Menand. He is, of course, a professor at Columbia Law School and the author of The Fed Unbound. So, Lev, welcome back to the Odd Lots podcast. Thanks for coming on at short notice.

Lev Menand (3:51)

Thanks for having me back.

Tracy Alloway (3:53)

So why don't we start with, let's just put this in context. I've seen a lot of people talking about this kind of criminal indictment, or possible criminal indictment as an unprecedented escalation in terms of central bank versus presidential tensions, I guess. How unprecedented is this?

Lev Menand (4:13)

I think this is about more even at this point than the central bank and central bank independence. This is an attempt by this administration to force out its perceived political opponents from the government. And so this is quite unprecedented. We haven't seen anything really quite like this, even in this administration over the past year. Something analogous would be a criminal investigation of Chuck Schumer or King Jeffries, or Supreme Court Justice. Jay Powell is a senior government official, and the administration's made quite clear that it would like him to carry out his duties differently from how he is doing it. And now they are basically threatening to throw him in jail if he doesn't step down or comply. And so this is a very, very significant escalation that is different in kind, even from what we saw over the summer, where the administration was sort of pursuing potential removal actions against various members of the board, including Powell. This is a criminal investigation, which I think is different in kind and should be understood to be a very different set of issues that go well beyond the Fed itself.