Hold the line on the Fed's independence

When the Federal Reserve was founded in 1913, Congress specifically established a central bank entirely independent from the political terrain of Washington to guarantee a stable and authoritative financial system.

That independence to make sound economic decisions is extraordinarily critical to the health of our monetary system and the global one. Without it, the Fed would be susceptible to political pressures to constantly lower interest rates, which could lead to skyrocketing inflation. Without it, our financial markets would lack the professional guidance required. Without it, the world’s economy, which for now depends upon the stability of the U.S. dollar, markets and banking system, would falter.

That independence is being tested, as the White House and the Department of Justice are attempting to upend 113 years of economic stability and structure.

After a campaign of intimidation, President Donald Trump this week threatened to fire Fed Chair Jerome Powell if he did not step down by May 15, when his term as the Fed’s leader officially ends. The president also has unleashed the Justice Department on Powell, asking for a criminal investigation of cost overruns on a construction project.

Powell, whose term as a Fed governor doesn’t end until 2028, has said he plans to stay as chair until a replacement is Senate-confirmed — which he’s legally allowed to do. Powell’s steadfastness and his decision to stand his ground will help the Fed through this crisis.

Trump’s moves have backfired. The Senate’s banking committee is supposed to hold confirmation hearings next week for Trump’s Fed chair pick, Kevin Warsh, a former member of the Fed’s Board of Governors and a financier. But one committee Republican, North Carolina Sen. Thom Tillis, is pledging not to vote to move Warsh’s nomination forward unless the Justice Department drops a ridiculous investigation of Powell. For now, Tillis is standing on an island; others should join him.

Trump has long criticized Powell, saying the Fed chair should be more aggressive in lowering interest rates. Displeased, Trump demanded that the Justice Department investigate considerable cost overruns in renovating the Fed’s headquarters under Powell’s tenure but a judge has refused, citing a lack of even rudimentary evidence to issue a subpoena for records. On Tuesday, Jeanine Pirro, a Trump buddy who played a judge on TV and is now the U.S. attorney for the District of Columbia, sent prosecutors to visit the Fed construction site. Once again Trump wrongly seeks to use the threat of a criminal investigation as a political weapon.

The U.S. and global economies are at an especially perilous moment. The war in Iran has damaged supply chains, driven up energy prices, worried global markets and put the threat of even higher inflation on the front burner. This moment requires steady leadership that can keep the Fed independent.

For some reason, Trump fails to understand that this stalemate he caused with his vendetta against Powell only ensures that for now, Powell will remain as chair. The longer it goes on, the greater the fear that Trump’s selection of Warsh means the Fed’s independence will be undermined.