One Fed battle after another

Summary

Episode Overview

Main Theme:
This episode explores the unprecedented political pressures facing the Federal Reserve and its Chair, Jerome Powell. In the wake of a viral video where Powell addresses threats of criminal charges— ostensibly tied to expensive Fed building renovations but widely believed to be about political influence—the hosts break down the situation, its context, and the implications for central bank independence and U.S. economic policy.

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Key Discussion Points & Insights

1. Powell’s Viral Video & Presidential Pressure

• [00:11-00:48] Jerome Powell posts an unusually direct video stating that threats of criminal charges are retaliation for the Fed’s interest rate decisions, not actually about building renovations.

  • Quote:

    "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."
    — Jerome Powell [00:36]

• Darian Woods notes how Powell, typically guarded and "paid to be boring," delivers his strongest-ever rebuke of President Trump's attacks on the Fed, marking a striking departure from neutral Fed communications.

2. The Fed’s Dual Mandate and Trump’s Criticism

• [02:24-02:48] The hosts reiterate the Fed’s twin goals—full employment and stable 2% inflation—primarily managed via interest rates.

• [02:48-02:59] Inflation is currently at 2.7%, making aggressive interest rate cuts (favored by Trump) unlikely.

• Quote:

  “Trump wants lower interest rates because he believes the economy would get a boost from cheaper borrowing.”
  — Waylon Wong [02:36]

3. The Renovation Scandal—Real or Pretext?

• [03:19-04:22] Trump and Republican lawmakers criticize massive cost overruns in the Fed’s renovation of historic buildings—estimated at $2.5B, up from $1.9B.
• Allegations focus on elements like “rooftop garden terraces,” “ornate water features,” and “VIP elevators.”
• Powell rebuts these claims as misleading and overblown.
  • Quote:

    “Some of those are just flatly misleading... that’s a mischaracterization...some of those are no longer in the plans.”
    — Jerome Powell [04:46]

• Practical context: building renovations are complex, encountering asbestos, historical requirements, and inflation.

4. Are the Cost Overruns Criminal?

• [05:48-06:41] Most large projects go over budget (92% per Danish researcher Bent Flubajer). Such overruns are not criminal; the key legal question is whether Powell lied to Congress—a point that appears moot and highly technical.
• Quote:

  “So garden variety cost overruns are not criminal.”
  — Waylon Wong [06:13]

• Materiality is key to perjury cases and is questionable here.

5. The Fight for Fed Independence

• [07:09-07:30] Trump is accused of seeking a compliant Fed. He previously tried to fire Fed official Lisa Cook. The case is now before the Supreme Court.

• The Fed countered by reappointing regional presidents, making it harder for the administration to influence the Fed’s core decision-makers.

  • Quote:

    "If I'm reading this properly, they just Trump-proofed the Fed."
    — Economist Justin Wolfers (social media, paraphrased by Waylon Wong) [07:30]

• Powell’s term as chair ends in May, but he can remain as a voting governor through 2028—another sticking point for the administration.

6. Stakes and Broader Impact

• [08:29-08:50] International data shows a clear correlation: political meddling with central banks leads to higher inflation. Some Republican senators have publicly opposed the subpoenas against Powell.
• [08:50-09:23] Markets are unshaken for now, but the episode reflects the deepening politicization of central banking—a body once regarded as above party politics is now a political battlefield.

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Notable Quotes & Memorable Moments

• Jerome Powell:

  "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."
  — [00:36]

• Darian Woods:

  “He’s paid to be boring and not spook the markets... this is the strongest we’ve ever heard Jerome Powell speak about President Trump’s patterns of attacks on the Fed.”
  — [00:48]

• Waylon Wong:

  “So the 2.7 is now 3.1.”
  — [05:14] (on rising renovation cost estimates)

• Jerome Powell:

  "I'm not aware of that. Yeah, it just came out. Yeah, I haven't heard that from anybody at the Fed."
  — [05:17] (awkward exchange about new cost numbers)

• Waylon Wong (paraphrasing Justin Wolfers):

  "If I'm reading this properly, they just Trump-proofed the Fed."
  — [07:30]

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Important Segments & Timestamps

• 00:11-00:48 - Powell’s viral video and direct message on political interference
• 02:24-02:48 - Fed’s dual mandate and context for the rate dispute
• 03:19-04:22 - Details of the building renovations and controversy
• 04:46-04:59 - Powell responds to allegations in public testimony
• 05:48-06:13 - Analysis of cost overruns and why they're normal, not criminal
• 07:09-07:30 - Broader battle over Fed independence, links to Lisa Cook case
• 08:00-08:21 - Implications for Powell’s continued influence post-chairmanship
• 08:29-08:50 - Historical perspective on central bank independence
• 08:50-09:23 - Political implications and current market reaction

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Key Takeaway

This episode offers a clear, engaging breakdown of a pivotal showdown over Federal Reserve independence in an era of mounting political intervention. It details how seemingly technical bureaucratic disputes—like building renovations—mask deeper struggles over who controls U.S. economic policy, underscoring the stakes for inflation, employment, and democracy itself.

Transcript

[NPR Announcer]

Npr.

[Waylon Wong]

As loyal indicator listeners almost certainly saw this weekend, Federal Reserve Chair Jerome Powell posted arguably the most viral front to camera video ever in central bank history. Powell revealed that the Fed had been threatened with criminal charges. These charges are ostensibly about renovations to Fed buildings, but. But Powell was crystal clear with what he believes this investigation is really about.

[Jerome Powell]

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.

[Darian Woods]

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

[Waylon Wong]

So to drop a weekend video calling out the administration's threats on Fed independence. This is huge and we're going to get into it. This is the indicator from Planet Money. I'm Waylon Wong.

[Darian Woods]

And I'm Darian Woods. Today on the show, what led to the administration's criminal investigation into Fed Chair Jerome Powell? How strong is it and what could come next?

[NPR Announcer]

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[Darian Woods]

Eduardo it's always worth reminding everybody that The Fed has two goals. Full employment and keeping inflation at 2%. And the main way the Fed does this is through interest rates.

[Waylon Wong]

Yeah, and high interest rates sting. This is the crux of President Trump's grievance with the Fed and Jerome Powell. Trump wants lower interest rates because he believes the economy would get a boost from cheaper borrowing.

[Darian Woods]

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

[Waylon Wong]

Trump has repeatedly criticized Powell for being too late on rate cuts. The President claimed on NBC News on Sunday night that he didn't know about the subpoenas that the Fed received. But that Powell quote, is not very good at the Fed and he's not very good at building buildings. By the way. This is not a metaphor. We are talking about literal buildings. Yeah.

[Darian Woods]

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

[Waylon Wong]

These buildings haven't had comprehensive renovations since they were first built in the 1930s. They have asbestos and lead, old plumbing, heating and ventilation systems. And of course you've got historical consideration. So it's a huge job to modernize them.

[Darian Woods]

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

[Waylon Wong]

Rooftop garden terraces, like Republican Senator Tim Scott at Powell's regular update to the Senate Banking Committee mid last year.

[NPR Announcer]

The ornate water features and final plans. The new elevators that dropped board members off at the VIP dining suite was page 37 of the final plans. The white marble was pages 40, 41, 65 of the final plans.

[Waylon Wong]

Powell hit back.

[Jerome Powell]

Can I just quickly say some of those are just flatly misleading the idea of elevators. You know, it's the same elevator. It's been there since the building was built. So that's, that's a mischaracterization. And some of those are no longer in the plans. They, you know, that's, that's several weeks later.

[Darian Woods]

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

[Waylon Wong]

Ah, yes, I remember that interaction well. They had a little hard hat photo op and then I got kind of derailed with this back and forth over the price tag.

[Darian Woods]

So the 2.7 is now 3.1.

[Jerome Powell]

I'm not aware of that. Yeah, it just came out. Yeah, I haven't heard that from anybody at the Fed.

[Darian Woods]

Straight out of the office.

[Waylon Wong]

Yeah. So as Powell implies, like with the elevators, the details are not as scandalous when you dig into them. That so called rooftop garden terrace is actually at ground level. It's Just a garden on top of an underground parking lot. The new water features have been removed from the plan, and the marble is restoring the original marble.

[Darian Woods]

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

[Waylon Wong]

So garden variety cost overruns are not criminal. But was Powell's testimony last year, did he knowingly make a false statement to Congress? We don't have the exact subpoena from the Department of Justice, but based on what Powell has said seems to be implying that Powell lied to the Senate Banking Committee last year about the renovations. So you could squint and find discrepancies. Like when Powell said there's no roof garden terraces, was that true? If they're on top of an underground parking lot, yeah.

[Darian Woods]

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

[Waylon Wong]

Powell says we need to look at the bigger picture here. Trump has made it clear that he wants the Fed chair to do his bidding on interest rates. He started his attacks on Powell during his first term, and things have escalated during this administration. Remember, Trump tried to fire Fed official Lisa Cook. She sued the administration, and the Supreme Court is expected to hear that case soon.

[Darian Woods]

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

[Waylon Wong]

Around who votes when gives us a clue as to why these attacks on Jerome Powell are happening. Now, like Powell is very close to ending his term as Fed chair in May. But the thing is, he can go back to his old voting role as a regular Fed governor, sticking around, voting how he likes until 2028. That's not something Trump would be happy about.

[Darian Woods]

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

[Waylon Wong]

We've talked a lot on the show about how important central bank independence is. It's a pretty clear correlation internationally that the more politicians meddle, the higher inflation goes. This could explain why various Republican lawmakers have opposed opposed the subpoenas targeting Powell. Some, like Senators Tillis and Murkowski, have even issued statements criticizing the move.

[Darian Woods]

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

[Waylon Wong]

This episode was produced by Corey Bridges with engineering by Kwesi Lee. It was fact checked by Sarah Juarez. Kate Concannon edits the show, and the indicator is a production of npr.