Yeah, things are still not good at the Fed
Sure, there’s lots to worry about, but Fed independence should be on your list
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When Lindsey covered the various ways the Trump administration has gone after the Federal Reserve back in September, we were both hopeful that the market’s negative reaction, as well as pushback from conservative politicians and corporate bigwigs, would be enough to turn the tide and leave the Fed’s independence in place.
But that’s not what’s happened.
This past weekend, Fed Chair Jerome Powell issued a frankly astounding (and unprecedented—but what isn’t these days) video message calling out President Donald Trump and his administration for what Powell is calling a politically motivated criminal investigation by the Department of Justice. The DoJ is looking into the $2.5 billion refurbishment of the Fed’s headquarters and whether the chair, whom the president has attacked over the past year, lied to Congress about its scope.
But Powell says these are pretexts; he hasn’t lowered interest rates as fast as the president would like (as Lindsey covered in her essay), and he is now under investigation—just like so many of the president’s other perceived enemies. Including Lisa Cook, a Fed governor whom Trump has tried to fire over allegations of mortgage fraud.
“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,” Powell said. (His speech is only two minutes and worth watching in full.)
For those who don’t follow the central bank, this might not seem like a big deal. But it’s not an understatement to say that this is a five-alarm fire. The federal governors never make political statements. In fact, even their economic statements are mild by design. That Powell feels it’s necessary to inform the public of the investigation at this early stage and affirm he has no plan to bend to the president’s wishes is a big deal.
The Federal Reserve serves a dual mandate: To promote maximum employment and keep inflation in check. The institution is also an independent actor; because its job is so important, it’s supposed to be separate from the politicking of the executive and congressional branches of government.
Like so many other norms, Trump is destroying the perception of Fed independence. Even more worrisome: Powell’s chairmanship ends in May; when he’s gone, Trump can install whomever he wants as chair anyway.
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But as The Wall Street Journal’s Greg Ip writes, what the administration is doing now will have ramifications long after Powell is gone.
“The criminal investigation into Federal Reserve Chair Jerome Powell isn’t ultimately about the Fed’s headquarters, or Powell, or even interest rates,” Ip writes. “It’s about power. President Trump intends to take control of the central bank, no matter what the law or the courts say.”
There are many reasons we should all be worried about the investigation into Powell, not least because lowering rates too quickly can lead to even higher inflation. Though lower rates are attractive to any president in the short term—Trump believes it will help fire up the economy—few Americans would be happy to pay even higher prices.
Regardless of how the investigation into Powell shakes out, a new chair, likely loyal to Trump, will be appointed in May. And then we may have even bigger issues on our hands.
-Alicia
The Fed in the News
Lindsey’s September essay is still a good primer on the Trump administration’s antics—and why it’s so bad when a central bank is politicized.
The DoJ is investigating whether Powell misled Congress. But he sent senators details about the renovation project last July, according to a letter seen by the Financial Times.
Trump denies that he’s involved in the investigation and says he has no plans to fire Powell.
The U.S. isn’t the only nation where politicians are threatening the independence of its central bank. “Around the world, a decades-old arrangement that has, on the whole, brought lower inflation and greater economic stability can no longer be taken for granted,” The Economist reports.
Some Republican senators are uncharacteristically pushing back against the administration’s actions. The most outspoken is Sen. Thom Tillis, the two-term North Carolina senator, who is retiring.
The Supreme Court will hear the case on whether Trump can fire Lisa Cook next week.
The economist Claudia Sahm lays out why Powell is so unique, and why troubles won’t end when his term is up. “Powell is a lifelong Republican. He served at the Treasury in the H.W. Bush administration. Obama nominated him to the Federal Reserve Board as a Governor in 2012. He is the last of the across-party Governor nominations, which were once fairly common at the Fed. Trump elevated him to Chair in 2018, and Biden renominated him in 2021. No one else at the Board or at the Reserve Banks comes close to that pedigree.”
The Brookings Institute has a helpful rundown of what it means that the Fed is independent and why that’s important.
It’s interesting to consider whether Powell will stay on as an ordinary member of the Fed board after his term as chair ends. Doing so would deny Trump the chance to appoint another governor “more amenable to his wishes,” as John Cassidy writes for The New Yorker, for a few more years. That is atypical, but then again, everything about this situation is.
What Else We’re Talking About
It’s hard to focus on much else given what’s going on in Minneapolis at the moment. Things have only deteriorated further over the past week. I’ve been reading coverage from local outlets like the Minnesota Star Tribune to stay up to date, but videos on social media are really getting to me. So many people are scared simply to go about their daily lives. -Alicia
I listen to NPR when I get ready in the morning, and I lingered a bit longer on Wednesday morning to hear a segment by Alina Selyukh and Connie Hanzhang Jin on their long-term reporting on the prices of over a hundred items at a suburban Walmart superstore in Georgia. NPR has been tracking prices at this store since 2018, and it was interesting to hear what items have gotten cheaper and more expensive over just the last year. (Coffee and chocolate up; eggs and milk down.) Funnily enough, my friend Laura Fenton emailed me that morning to recommend I listen to the segment, and we both realized we had been listening at the same time. -Lindsey
I love the art direction of this Who What Wear shoot with Elle Fanning. The photographer, Szilveszter Makó, is also behind the stunning Rama Duwaji shoot for The Cut. -Alicia
In the last few weeks, I’ve had a few vague conversations with mom friends about summer camp. (Is this the year Freddy goes to sleep-away camp? TBD!) It always feels insane to start planning for the summer six months out, but that’s the reality of being a parent. But maybe it doesn’t have to be so expensive? Friend of The Purse Katherine Goldstein put together an incredibly comprehensive guide about how to ditch expensive U.S. summer camp and take a longer trip abroad, complete with a curated list of drop-off kids programming all over the world so parents can work remotely. She also has a budgeting tool and tons of money-saving tips to help you pull this off. Check out her guide here! -Lindsey
On Our Radar
The Purse is looking for a social media intern! Here’s the job listing!
I had so much fun interviewing Purse readers about how much they spend on wellness and self care for Yahoo Life. (Though I feel a little jealous of the home spa!) Next up is a story on date nights! Hoo boy can they be expensive! Share your story here! -Lindsey
I wrote a story for The New York Times about Gen Z investors who got into the markets thanks to the meme stock craze but have since decided old-school strategies are a safer bet. -Alicia
We had the absolute BEST time at our vision board event last week. A big thank you to everyone who came out, as well as to our sponsor, Copilot Money. Just a reminder: Purse readers can get two months free when you use the code THEPURSE. Plus, Copilot Money is offering 26% off your first year when you sign up at copilot.money (new users only).
Quote of the Week
Comment of the Week
“One thing I will say about the division of labor—I felt like it was relatively equitable until this year when my son joined a club sports team. There is so much coordination and communication and most of it happens between the moms of the team…The dads rarely participate in the organization of weekend tournaments, travel logistics, or potlucks. I’ve enjoyed being part of this sports community, and I’m participating for my son, but I was not prepared for the gender inequity of it all.” -Annika Dukes commenting on the most recent Division of Labor, which featured a divorced couple who found more equity in their split.
Best Money We Spent Last Week
I spent $8 on two copies of The New York Times because my story was on the front page of the Monday Business section! -Alicia
I keep thinking about Alicia’s recent story on her most expensive year, because I feel like I’m having my most expensive month! So many expected and unexpected expenses have popped up, from signing Freddy up for a new after-school program that required the entire payment up front to buying a new fridge after ours broke last week. I’m not sure I spent money on anything fun last week, but as the big expenses pile up, it’s been a good reminder that it’s important to save more during those months when you spend less so you can be prepared for the months when the expenses just don’t stop. -Lindsey
Thanks for the informative, insightful words on a topic that's supposed to be boring. And congratulations, Alicia, on your NYT article. Woo!
thanks so much for mentioning my summer camp guide!