More pressure on the Federal Reserve emerges

Summary

News broke on Sunday night that the Federal Reserve received grand jury subpoenas from the Department of Justice on Friday, escalating the Trump administration's pressure on the nation's central bank. While we do not believe this will alter the near-term course of monetary policy, it will make the next Fed Chair's job that much harder to build a consensus among the 19 members of the Federal Open Market Committee.

• The latest in a string of efforts to pressure the Fed: We believe it is worth highlighting that President Trump's initial reaction was to claim he was unaware of the DOJ's action. That said, the DOJ's investigation follows a year in which the president has made it clear he is unhappy with the Federal Reserve's monetary policy stance, which could have spurred administration officials to open up the investigation without an explicit green-light from President Trump.
• The timing strikes us as odd: Jerome Powell's term as Fed Chair expires in May, leaving only three more FOMC meetings for him to preside over. However, Powell’s term as governor runs until January 2028, and there has been speculation about him staying on as a governor until then to help maintain Fed independence. We suspect the investigation may be an effort by the administration to put pressure on Powell to leave the Board of Governors entirely by May. An open investigation may increase the prospect of him staying to add his weight to preserving central bank independence, but we still see it as more likely than not that he departs after his 14 years of service.

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