Trump targets Fed chair for politics. Crapo should launch inquiry | Opinion

President Donald Trump commenced his long-feared assault on the independence of the Federal Reserve Bank when Fed Chair Jerome Powell, who was nominated by Trump in 2018, was served with grand jury subpoenas over renovations to its office building.

“No one — certainly not the chair of the Federal Reserve — is above the law,” Powell said in a statement. “But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.”

Powell’s sentiment has been echoed by every living former Fed chair.

The prosecution is being pursued by Washington, D.C., U.S. Attorney Jeanine Pirro — a political hack, not a career prosecutor. Pirro is most noted for repeatedly failing to obtain grand jury indictments, putting the lie to the old saying that you can indict a ham sandwich.

In response to the political inquiry into Powell, Senate Finance Committee member Thom Tillis, R-North Carolina, has vowed to block all of Trump’s nominees to the Federal Reserve unless the bogus case is dropped.

“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question,” Tillis wrote on X.

Sen. Lisa Murkowski, R-Alaska, has likewise acted responsibly by calling for a congressional investigation of the Department of Justice.

“The stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer,” she wrote on X.

So where is Sen. Mike Crapo, R-Idaho, who chairs the Senate Finance Committee? In a statement to a Statesman reporter, Crapo said he doesn’t know enough to reach a conclusion.

“I have long said the Federal Reserve, as an independent body, should remain free of political influence. I do not have many facts of the current investigative matter, and will withhold further comment. I would like to see this resolved as quickly as possible,” Crapo said.

The solution for not enough facts is exactly what Murkowski suggests. As chair of the Senate Finance Committee, Crapo should immediately launch a congressional investigation of the relevant Department of Justice officials. He can start by subpoenaing Pirro.

In the face of one of the greatest threats imaginable to the long-term stability of the American banking system and the nation’s broader economy, this is Crapo’s chance to do some real good.

The threat of politicization of the Fed has long been a central worry for economists, and President Richard Nixon was the last to seriously challenge it. And it’s very clear why Fed independence is important.

It does a lot of things, but the central thing the Fed does is to set one interest rate (called the federal funds rate) that banks make the basis of all sorts of loans and other credit instruments, including business loans and mortgages. This works like the gas knob on a stove.

Raise those rates, and the price of credit goes up, which means a drop in business investment, new home construction and economic activity more broadly, along with rising unemployment. Higher rates turn down the gas.

Lower the federal funds rate, and businesses can justify more marginal investments, people can buy more homes and the unemployment rate drops. Lower rates turn up the gas.

So why not just keep the gas on full blast all the time to keep growth high and unemployment low? Because if the economy gets too hot, you get rising inflation. Let that get out of control, and you can wind up with an out-of-control inflationary spiral.

So an independent Fed keeps an eye on inflation and unemployment, and tries to strike a balance. There are genuine policy disagreements about whether to emphasize inflation or unemployment more. (Powell has put a greater emphasis on low unemployment than past Fed chairs, something I think is good.)

What you don’t want is the Fed governors thinking about the next election. And this move threatens to make that the only thing they think about.

Here’s how a politicized Fed would work: Political incumbents know they get more votes when the economy is good than when the economy is bad. So any time there’s an election coming up — a pivotal midterm or a president seeking a second term, for example — the Fed will cut rates, heating up the economy. There will be pressure to do this regardless of the economic conditions, and the result will be that often you trigger a significant bout of rising inflation.

Upset by the shape of the economy in the latter part of the Biden administration? If Trump succeeds in ending the independence of the Fed, get ready for that or worse every two years.

Crapo is one of the members of Congress best able to combat this threat, given his high post. It is his duty to use the power that’s been entrusted to him.

Bryan Clark is an opinion writer for the Idaho Statesman.

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