On Sunday night, my colleague Nick Timrose was at home, going about his usual routine. I had been washing the dishes and thinking I was going to be putting my kids to bed. Always an exciting time in Washington these days. But then, in the middle of Sunday night football, around 7.30 p.m. Eastern, a two-minute video appeared on the Federal Reserve's X account. This was an extraordinary video. It featured Fed Chair Jerome Powell in a gray suit in front of an American flag. Good evening. On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment. In a stunning move, Powell publicly broke the news that the Federal Reserve was under criminal investigation by the Justice Department. Something that's never happened before. This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure. Powell was very direct. He said this action was a political move on the part of the Trump administration, intended to intimidate the Fed into lowering interest rates. 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. On Sunday night, President Trump said he didn't know anything about the subpoenas. As you were watching the video, what was going through your mind? You know, Powell has been very composed and measured. This is a man who chooses his words extremely carefully. Watching that video, you couldn't help but recognize that a line had been crossed, that we were no longer in this environment of kind of tiptoeing around what's going on. It was direct, blunt, explicit, in a way that nothing he had said before had approached. Welcome to the Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, January 13th. Coming up on the show, the Fed share fights back. This episode of the Journal is presented by Intuit Enterprise Suite. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite, the AI native ERP is here. From the makers of QuickBooks, learn more at intuit.com. For adults with Crohn's disease or ulcerative colitis symptoms, every choice matters. Tremfaya offers self-injection or intravenous infusion from the start. Tremfaya is administered as injections under the skin or infusions through a vein every four weeks, followed by injections under the skin every four or eight weeks. If your doctor decides that you can self-inject Tremfaya, proper training is required. 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Powell gave some defensive answers saying, you know, a lot of the things you've read in the press aren't accurate. We're not doing this and we're not doing that. 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 a mischaracterization. And some of those are no longer in the plans. You know, that's... The Fed says the project has faced cost overruns, in part because of unforeseen construction conditions, including Morris Bestersen expected and toxic contamination in the soil. After Powell testified in June, White House budget director Russell Vote sent him a letter. It said that Powell's testimony was at odds with the public plans for the building. So he implied in this letter, basically, Powell either lied to Congress or the Fed failed to notify the relevant building authorities around Washington what they were doing with these buildings. Powell responded by defending his testimony to Congress. But the scrutiny over the renovations tracked with a broader critique of Powell's leadership. Some in the White House pointed to the cost overruns as an example of the Fed's shares in competence. President Trump has also publicly complained that Powell was taking too long to lower interest rates. People aren't able to buy a house because this guy is a numbskull. He keeps the rates too high. He's called him a bunch of names, an idiot, a moron. He calls him too late because he thinks the Fed has been too late to cut interest rates. Too late. I call him too late, Powell, because he's always too late. The Fed hadn't adjusted interest rates since the start of Trump's second term, mainly because it was concerned about the risk of inflation that could be brought on by Trump's tariff policy. Still, Trump repeatedly called for Powell to be ousted, saying he wants to replace him before Powell's term expires in May. This past July, the tension between the two men was on full display. Powell and Trump, accompanied by members of the press, took a tour of the Federal Reserve construction site. We had the two men in suits and hard hats traipsing around, these dusty, hot, these plywood walls. It's a very big construction site over there. The tour was awkward. At one point, Trump claimed that the renovation's price tag had swelled to $3.1 billion. It went up a little bit, or a lot. So the 2.7 is now 3.1. I'm not aware of that. It just came out. Yeah, I haven't heard that from anybody at the Fed. And Powell corrected him in front of the rolling cameras saying, no, no, Mr. President, you just added a third building. So there was a little bit of a routine, almost like, can you believe this? The President and the Fed Chair, who rarely talk or hear kind of squabbling over cost issues at a construction site. Donald Trump's a builder. He knows about a lot of the things they were talking about on that tour. So the whole issue, you know, we're watching this thinking maybe there's going to be some real fireworks at the end of it. But then at the end of the tour, Trump is asked by a reporter, well, is this a fireable offense? All of these cost overruns, and you know, the White House had been building the argument that this was gross negligence, and Trump sort of dismissed it all. You know, cost overruns happen. Look, there's always Monday morning quarterbacks. I don't want to be that. I want to help them get it finished. And then as quickly as it materialized, it all sort of faded away, and we were on to the next thing. A few months later, the Fed did decide to cut interest rates. Inflation hadn't spiked because of the tariffs. Plus, there were new concerns about a weakening job market. And Powell is the person leading the Fed to cut interest rates against growing objections from his colleagues. So these renovations were at issue over the summer, and since then, the Fed has cut interest rates. So why did the Justice Department issue these subpoenas now? That's a good question, and it's something that, you know, should come out in the fullness of time. We've seen the administration go after other enemies of the president, Jim Comey, the former FBI director, Leticia James, the prosecutor in Manhattan. So, you know, it's not like this is the first time we've seen some sort of effort by the Justice Department to investigate or take illegal action against the people that Donald Trump doesn't like. The Justice Department has gone after others in the Federal Reserve as well. After Trump said he was firing Fed governor Lisa Cook in August, the agency opened a criminal investigation citing alleged mortgage fraud. Cook has denied any wrongdoing. Courts have allowed her to remain in her job as she challenges her removal in federal court. As for the investigation into Powell, U.S. Attorney Jeanine Pirro defended the move. In a post on X on Monday night, Pirro said her office had contacted the Federal Reserve about the building renovations on multiple occasions, but were ignored. In Sunday's video, Powell candidly said what he thought the latest criminal investigation was about. He called it a pretext. This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress' oversight role. The Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts. It was the first time he said what many people around the Fed have believed for months, which is that this isn't about building costs overruns. 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. I mean, this might be a little bit of a tangent, but how often do we see criminal investigations into projects that go over budget more broadly? We don't. We don't see that. This all fits with a pattern of interest rates are too high for the President's liking, and so there are other ways to put people on notice if they don't get on the team. As you've said, this is out of character for Jerome Powell. What does it tell you that Powell ultimately decided to respond in the way that he did, so directly? There's no longer a way to weaponize private pressure against the Fed if it's no longer private. By telling the world, here's what is happening, and here's what we think about it. It allows the Fed to redefine the field on which this unprecedented clash is playing out. There have been Presidents who have publicly and privately pressured Fed shares. It's normal for the President to not love when the Fed is raising interest rates or not cutting interest rates, but you'd have to go back to the Nixon administration to find examples of this kind of pressure being applied. And even then, I don't think Nixon did anything like this to the Fed. What the investigation means for the future of the Fed is next. Hey, you could be earning 2% daily cash back on that purchase. And that one. And even that one. That's because Apple Card users earn 2% daily cash back on every purchase, including everyday items you buy online or in-store. When using their Apple Card with Apple Pay, not an Apple Card customer, you can apply in the Wallet app on iPhone. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch. Terms and more at apple.co.com. Thanks for watching. This episode is brought to you by Alexa Plus. Say hello to Alexa Plus and see how Alexa can do more for you. Need tickets to that last-minute show? Craving your favorite restaurant? Sit back, relax, and talk naturally. Alexa's on it! Alexa learns your preferences to create a personalized experience. And now Alexa Plus is free with Prime on your Amazon devices, like Echo and Fire TV. Learn more at amazon.com slash Alexa Plus. Public service sometimes requires standing firm in the face of threats. In Sunday's video, Fed Chair Jerome Powell made it clear that he's staying put until the end of his term. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people. There have certainly been people around the president who have hoped that if they turn up the heat enough, eventually this frog is going to jump out of the pot. Just make this as difficult as you can because you're sending a message to more than the current Fed Chair. You're sending a message to everybody that this is what you will face if you don't think very hard about giving the president what he wants. The timing of this is also remarkable because Lisa Cook, the Fed Governor who is going to be in the Supreme Court next week, her attorneys have been arguing that she's being dismissed over a pretext. And they can now point to this and say, see, look, this is what Trump actually wants. He wants to just get control of monetary policy. And the Supreme Court justices can't unsee what Powell said on Sunday night. Some allies of the president, including House Speaker Mike Johnson, have expressed support for the investigation. But it's also drawn some notable rebukes. According to people familiar with the matter, Treasury Secretary Scott Besant called the president on Sunday night and told him that the investigation could impact markets. Besant was also worried that it could cause hurdles during the Senate confirmation process for the next Fed Chair. That's already started to play out. On Sunday night, you had a Republican Senator from North Carolina, Tom Tillis, who is retiring. And he's on the Senate Banking Committee, which is the committee that has jurisdiction over the Fed that will oversee the confirmation of the next Fed Chair. He said, I will not vote on any nominee for the Fed, including the next chair, until this is behind us. A message to whatever, whoever went after what I consider to be vindictive prosecution to grow up and give the president better advice. That's important because Republicans right now have a 13 to 11 majority on the Senate Banking Committee. So if they lose one vote, you know, as long as Tillis votes no and every Democrat shows up and votes no, you no longer can refer positively a nominee out of that committee. Republican Senator Lisa Murkowski echoed Tillis's call to block nominations for Powell's successor. She called the investigation, quote, nothing more than an attempted coercion. Even if a nominee did make it to the Senate floor, it would only require a handful of Republicans to block a confirmation. If you get four senators on the Republican side who take that position and they really stand by it, it could be very difficult to confirm a new Fed Chair if this escalates further. So practically speaking, what's the upshot of that if a new Fed Chair isn't confirmed? Does Powell continue to serve or what happens? I don't know. I mean, yeah, it's like we're getting into all these hypotheticals that I didn't think we were going to, you know, it's 1 a.m. Monday morning and I'm reading congressional research service papers on, well, what happens when there's a vacancy? And here's the answer. You know, there have been two times in the modern Fed where the new Fed Chair wasn't confirmed when the old Chair's term expired. And what happened in those two scenarios in 1948 and 1978, the outgoing Chair stayed in the job and served as Chair for a couple of months, a couple of weeks. But we don't know here. This is Uncharted Waters. This morning, before he departed from Michigan to give a speech on the economy, Trump responded to questions about the investigation. So either he's incompetent or he's crooked. I don't know what he is, but he does this. Certainly he doesn't do a very good job. Hanging over all this is the question of whether the Federal Reserve will continue to be able to do what it's supposed to do, make big economy impacting decisions without political pressure. Unch says that could be in the hands of the next Fed Chair. If you're picked to be the Fed Chair, are you willing to face the same intimidation that the current Fed Chair is facing? And how will you react to it? That wasn't a question that you would have expected to have been asked before this. But, you know, would you fight a criminal investigation? You know, how far are you willing to go? Will you conduct yourself the way Powell has? It's now going to be a focus very likely of the next confirmation hearing. I feel like you've been asked this question a lot in the last year, Nick, but could this be a step toward the end of independence for the Fed? Yeah, I think you're looking at more than just the loss of Fed independence. What you're looking at is the White House claiming control of monetary policy. When people talk about Fed independence, well, what Fed independence? It's not in the Constitution. There's no Fed. It should be a fourth branch of government. What people are talking about is the existing branches of government agreeing to this relationship that we should not have direct political control over monetary policy because the long run interest of the economy and the short run interest of politicians don't always sync up. And so what's at stake here isn't just the end of kind of this generic Fed independence. What's at stake is can this president have much greater control over monetary policy? It's all for today, Tuesday, January 13th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by C. Ryan Barber, Josh Dossi, Sadie Gurman, Meredith McGraw, and Brian Schwartz. Thanks for listening. See you tomorrow. The future of everything is The Wall Street Journal's flagship live event. Returning to New York City May 4th through 5th. Be there as CEOs, policymakers, and innovators sit down with our journalists to answer the most pressing questions of the day. From finance, tech, and economic policy to sports, streaming, and style, we're bringing together today's most compelling newsmakers for two days of conversations on what's ahead. Listeners of this podcast can access exclusive discounted rates by visiting wsj.com. That's wsj.com.
