Washington: What to Watch Now

The Trump administration has launched a criminal investigation into Federal Reserve Chair Jerome Powell, according to multiple news sources, raising new questions about Fed independence.

The U.S. attorney's office in the District of Columbia has reportedly opened a criminal investigation into Powell over the central bank's renovations of its headquarters and whether Powell lied to Congress in testimony last year about the project. In an extraordinary response, Powell released a two-minute video message January 11th in which he pushed back hard on the accusations and said explicitly that the threat of criminal charges from the administration is a direct consequence of the Fed not lowering interest rates as much as the president would like.

"This is about whether the Fed will 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 in the video.

According to The New York Times, a spokesman for Attorney General Pam Bondi declined to comment on the investigation but said Ms. Bondi had "instructed her U.S. attorneys to prioritize investigating any abuses of taxpayer dollars."

The development escalates the ongoing pressure campaign that the president has waged on Powell and other Fed members to lower rates and raises questions that are likely to be concerning for the markets about whether the central bank can remain independent of political pressure.

There is no timetable for how long any investigation might take, and an investigation does not mean that criminal charges will be brought. If he is charged, Powell is likely to defend himself in what could be a lengthy court process.

Powell's term as chair ends in May, but his term as a regular Fed governor continues until January 2028. Historically, chairs have not stayed on as governors after their term ends, but this situation may increase the chances that Powell does so, as staying on would prevent the president from appointing a new Fed governor.

Sen. Thom Tillis (R-N.C.) said January 11th that he will "oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved." Tillis sits on the Senate Banking Committee, which would conduct confirmation hearings for any Fed nominee. That could make things tricky in the committee, which currently has 13 Republicans and 11 Democrats. If another Republican were to vote with Tillis in opposing a nominee, that would prevent that nomination from moving forward.

It was a bit of a surprise when a batch of Supreme Court decisions released on January 9th did not include a decision on the high-profile case challenging the bulk of President Donald Trump's tariffs. But the Court said that it will release another set of decisions on January 14th, increasing speculation that the tariff case could be decided this week.

The Court seemed skeptical during oral arguments in November that the president had properly used an emergency authority to impose the so-called "reciprocal" tariffs on imports from about 100 countries as well as some of the tariffs on imports from Canada, China and Mexico. A ruling against the president could trigger a massive and complicated refund process for about $150 billion in tariffs paid to date.

Trump on January 9th called for a 10% cap on interest rates that would begin on January 20th, but it's unclear how he would make financial services companies comply. Such a measure could only be imposed by Congress, where the proposal faces an uncertain future. Any executive order is sure to face legal challenges. Banking trade associations quickly voiced objections, saying such a move would reduce credit availability.

The House of Representatives on January 8th approved a three-year extension of the subsidies, which help lower premiums for about 22 million Americans who purchase health insurance through the Affordable Care Act. The subsidies were a key reason for last fall's record-long government shutdown, but the end of the shutdown failed to resolve the issue and the subsidies expired as scheduled on December 31st.

Seventeen Republicans and all 213 House Democrats supported the extension. Key to passage were the votes of Republicans in swing states who are concerned that failing to address the cost of health insurance could be a political liability in this fall's midterm elections. The bill now moves to the Senate, where bipartisan negotiators say they are close to a compromise that would extend the subsidies for two years with several restrictions, including income caps, a minimum payment requirement for participants and anti-fraud measures, among other changes. If such a deal comes together, the Senate could pass it and then send it back to the House for a final vote.

On January 8th the House overwhelmingly approved the package by an overwhelming 397-28 margin. It includes three of the 12 appropriations bills, which would fund the Departments of Commerce, Energy, Interior and Justice, as well as the EPA and water and science programs. The bill now goes to the Senate.

Congress is scrambling to avoid a second shutdown at the end of the month, as the temporary deal to reopen the government last November only provided government funding through January 30th. Even if the Senate passes the three-bill package, lawmakers still have six more appropriations bills to go. But tensions are much lower than they were last fall, and neither party seems interested in a second shutdown. A short-term temporary extension of funding to allow additional time for negotiations seems more likely than another shutdown.

Senators approved a procedural motion on January 8th that signaled support for a "war powers" resolution prohibiting the president from taking any further military action in or against Venezuela without congressional authorization. Five Republicans joined all Senate Democrats in voting to move the plan forward. A final vote on the resolution is expected this week.

It's mostly a symbolic move, as the plan would still have to pass the House and even if it did pass that chamber, the president would likely veto it. But it's a notable development because it underscores the divisions that exist, even among Republicans, about the situation in Venezuela. Even after classified briefings for the Senate and House from top administration officials last week, Capitol Hill lawmakers from both parties are concerned about what it means that the United States is now "running" Venezuela and what the long-term plans and goals are for the operation.
 

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