Odd Lots - The Fight Over Fed Independence Just Got Taken To a Whole New Level

Episode Date: January 12, 2026

Even before Trump's victory in 2024, it was becoming clear that the Fed would come under political pressure like never before. The first year of the new administration bore that out. Not only had Fed Chairman Jerome Powell come under tremendous pressure over interest rate policy and the cost of office renovations, Trump has tried to fire Fed Governor Lisa Cook. The Cook case will soon be argued in front of the Supreme Court, but now we have another earthquake. On Sunday night, the news broke that Powell had been served with a subpoena from the DOJ, raising the potential for criminal charges. Powell himself, who has assiduously tried to avoid the controversy, blasted the move as a form of revenge for the administration's displeasure with his interest rate policy. So where does this leave us now? On this episode, we speak with Lev Menand, a professor at Columbia Law School at the author of the Fed Unbound. He explains where things sit not with Fed independence, and why the DOJ's role here takes the fight to a whole new level. Read more:Dollar Drops Most in Three Weeks as Fed Gets Subpoenas‘Sell America’ Trade Is Revived by Trump’s Latest Fed Attack Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, I feel like we're, what, about 10 days, 12 days into 2026. And how many emergency episodes have we recorded so far? This is going to be our fourth. Our poor producers, you know, and they keep happening on weekends, too, which is not the big development to keep happening on weekends.

But I think it's going to be a busy year for us. Sad, but I am sure you are correct. I mean, from the news business perspective, there's certainly no shortage of news flow, and that can be a good thing. But it is hard to keep up nowadays, as you mentioned. I know, I want to do a Claude Cod Code episode. When are we going to get around to that? So this is the second weekend of 2026.

And the news this weekend is that Fed Chairman Jerome Powell, said that the central bank has been served with a grand jury subpoena from the DOJ threatening a criminal indictment. And this has to do with the renovation of a Federal Reserve building, which, you know, Trump has made noises about before specifically, apparently the wrongdoing for this particular indictment or potential indictment is that Jerome Powell might have lied when he gave his congressional testimony back in. I think it was June of last year. But as we said, you know, our timelines are starting to all melt and blur into one. But basically, this is the next big escalation in the Trump versus Fed fight. Yes, exactly right. And I think there's a few interesting things here.

I mean, obviously Jerome Powell is on his way out already as Fed chair, though he could stay on the board, and that's interesting. And now I think there's people are thinking, well, maybe he's going to stick around more because of this. And then the other element, too, is what I would say, say is like one of the most direct statements in response. Yesterday evening, Jerome Powell put out a video and a statement in which he said that this subpoena is really about the administration's frustration with interest rate policy. And of course, Powell has been very diplomatic with all the criticism, really not commenting at all about all of the various critiques.

We're just going to do our job. We're going to do the job for the American people, et cetera. basically deflecting any questions on the politics surrounding. And this is a major break. Our colleague Cameron Kreis, as he put it, this is the straw that broke the camel's back. And he's being more direct than almost anyone else in public service or government, et cetera, and saying this is essentially extortion, this is intimidation, this is thug behavior,

and this is not how he's talked about the pressure in the past. Right. And if you watch the video, I mean, Pal has annoyed. grandpa that has had, you know, enough of all of this nonsense just written all over his face. Bad weekend for Powell, by the way, because the guitarist from his favorite band, Grateful Dead, also died. So, you know, not a great weekend for Powell. But obviously, on a serious note, we need to talk about what all of this means, how it fits into the ongoing tensions between the central bank and the Trump administration. And who better? Who's the man that we always call

when this happens, and I guess it's happening more frequently nowadays. But we always call Lev Menand. He is, of course, a professor at Columbia Law School and the author of The Fed Unbound. So Lev, welcome back to the Odd Thoughts podcast. Thanks for coming on at short notice. Thanks for having me back. So why don't we start with, let's just put this in context. I've seen a lot of people talking about this kind of criminal indictment or, you know, possible criminal indictment as an unprecedented escalation. in terms of central bank versus presidential tensions, I guess. How unprecedented is this? I think this is about more even at this point than the central bank and central bank independence.

This is an attempt by this administration to force out its perceived political opponents from the government. And so this is quite unprecedented. We haven't seen anything really quite like this, even in this administration over the past year. You know, something analogous would be, you know, a criminal investigation of Chuck Schumer or King Jeffries or, you know, Supreme Court Justice. J. Powell is a senior government official, and the administration's made quite clear that it would like him to carry out his duties differently from how he is doing it. And now they are basically threatening to throw him in jail if he doesn't step down or comply.

And so this is a very, very significant escalation that is different in kind, even from what we saw over the summer, where the administration was sort of pursuing potential removal actions against various members of the board, including Powell. This is a criminal investigation, which I think is different and kind and should be understood to be a very different set of issues

that go well beyond the Fed itself. Right. I think what's striking here is we're talking about this in the context of Fed independence questions, right? Can the president remove a Fed chair or a Fed governor, whatever? Can they be fired? But this is kind of separate because this isn't really, there is this question. question and this question will get to the Supreme Court at some point. But this is sort of like a sideways thing or a parallel thing from that. This is about accusation of a crime. Yeah, exactly.

And so there are now multiple different sort of legal proceedings underway involving the administration's effort to basically cow the Federal Reserve into submission and also sort of get to a four-vote majority on the board of governors. One dispute involves Lisa Cook, and incidentally, we're just days away from Supreme Court oral argument in the dispute over whether President Trump's efforts to terminate Lisa Cook last year were legally adequate. Right now, the courts have kept her in her job. So he was not actually able to fire her, but he's still moving to do it, and the Supreme Court's going to weigh in on whether he can in a matter of days. This is not, a similar action against Powell. Trump has not, at this point, attempted to remove him from office

under the statute. This is an attempt to basically bully him out of office using the Department of Justice, which is a very different thing. You know, his liberty is threatened, you know, it's not just that he could lose his job. It's that he could go to jail. And I can't think of any analog in the history of the U.S. Central Bank or any, you know, U.S. agency to this sort of action by an administration against a member of the government, an official in the government. So how should we actually think about the timing of all of this? Because, I mean, you know, everyone knows Powell is on his way out anyway. It's not that long until we're going to have a new Fed chair. So the idea of...

of going after him with a potential criminal proceeding when, you know, pretty soon he's not going to be there anyway. It doesn't necessarily make much sense in terms of influencing actual Fed policy, but maybe it makes a lot of sense, to your earlier point, about seeking revenge against people who are perceived to be enemies. This is about a lot of things at once.

I think that's right. It's like, maybe let's try to tease out some of the different things that are going on here. One is that Powell is still serving as chair, and his term runs until May. And Trump has been clear that he would like to replace Powell as chair and that he has, in fact, identified who he wants in that job. And so on one level, this may be about getting Powell to step down before May so that he can be replaced, you know, months earlier. I agree with you. That doesn't seem like justification for this sort of escalation on its own.

As Joe mentioned earlier, Powell is also serving a term as governor. That term runs until 2028. And if Powell were to choose to stay on the board not to resign as governor when his chair term expires, that would take a seat that Trump would otherwise. be able to nominate someone to fill. And that is relevant because the board at the beginning of Trump's term had seven governors on it. And so it was full. And those governors have 14 years terms that are staggered every two years,

designed to prevent a president from being able to quickly take control of the board with their own appointees, right? It insulates the board from the White House to have 14-year terms. governor, seven of them who are only turnover every two years. But if a lot of those governors can be induced to resign early, then the president can put, you know, his or her own people in. And so one thing that could be going on here is an effort to get Powell to step down from his governor's seat. Famously, Mariner Eccles, who was the chair of the board in the 30s and 40s, when he was no longer chair, he stayed in his governor's seat.

And that is unusual, but can happen when the stakes for who's in those seats are high, like they are now. But I also think it's worth recognizing that there's something going on that's bigger than the Fed here. It isn't just sort of this micro-politics of, you know, Jerome Powell's seat as chair, Jerome Powell's seat as governor that's about Jerome Powell as a high profile prominent government official who has not bent the knee being made an example of so that everybody else on the board of governors and throughout the U.S. government can see what could happen to you if you defy the administration. And that's why I feel the stakes for this are actually quite high. And it's about

the larger dynamic of what happens in a government where people are scared of the White House. Right. There's a few different things going on here, which is that like, you know, you could, it's not crazy to think that we should have a set. Like, one could argue, and I'm sure other countries have this. I don't know about the monetary policy structure and other countries, but I'm sure other countries have it such that the chairman of the central bank or the head of the central bank is directly accountable to the head of state and can be fired, etc. Like these are reasonable things to debate about what is the optimal structure, etc. The idea of criminal charges or the perception, which many people share right now,

that criminal charges because you don't like essentially because someone doesn't like the job you're doing, obviously gets to an even deeper issue of governance that would apply in any governmental system anywhere. One thing I just want to note, Pollymarket has a bet on Jerome Powell out of the Fed board by the end of the year. That was trading in the mid-80s last night. That's down to the mid-70s today. So clearly, not a lot of money on this. It's just sort of an interesting thing to note that already there's maybe this expectation that he will not just like step away quietly now as expected. Also, Tom Tillis, the Republican on the Senate Banking Committee, already said he's not going to, He's going to block any Fed nominations at this point.

So that's another impediment to who, you know, some other Republicans stand up to Trump on this, whether Trump can get that majority that he craved. Yeah, I think it's very unclear how this is going to play out at this point. Jay Powell is somebody with allies on Capitol Hill, allies in the Senate Republican caucus. He is, in fact, a Republican. He was in fact nominated to this job by President Trump. and he could fight this and stay in the job. You know, it's hard to know. And to some extent, it's a personal choice for him,

whether to resign in May or now or to stay in the job. And it's also only to tell whether there'll be an attempted removal of Powell the way there was an attempt to remove Lisa Cook. On April 4th, 2023, around two in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, we did this to you. What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16.

What's the actual status of the Lisa Cook proceedings? Because this is the other common thread. There are many common threads running between the Lisa Cook action and this potential action against Powell, which is that Bill Pulte, the FHFA director, is supposedly the sort of mastermind or the driving force, perhaps, between both of these, not charges, but, well, one is a potential charge, and the other one is potential. potential firing for misconduct. Yeah, so the Cook case is set for oral argument and, you know, in a matter of days from now at the court.

And then the court could issue a decision in that matter any time between now and June at the end of its term. And given the stakes of the case, you know, often high stakes cases are decided right at the very end. You know, June, there's this like, you know, period of tubes. the Supreme Court issues a lot of important decisions. I wouldn't be shocked if this case was, you know, resolved in June when the court will also be considering a case involving Rebecca Slaughter that was argued in December about whether there can be any agencies where the president

only removed the heads for cause. And it's expected that the Fed is going to be carved out from a decision that would invalidate those provisions in other statutes. But if the Fed wasn't carved out and the court decided in that case to just invalidate all of the laws that limit the president's ability to remove officials to situations involving cause, then, of course, Trump could just fire everybody on the board without any reason, and that would moot the Lisa Cook dispute, and she would be removed. So that case is also likely to be decided in June. And so those two cases are sort of, those are sort of, you know, making their way towards a decision right now.

This has barely begun. And there's no parallel sort of removal action, but it's a criminal proceeding. And so it will raise a lot of different legal issues from those other two cases. So according to Nick Timrose at the Wall Street Journal, Jerome Powell had already hired the firm Williams and Connolly on his own dime. Powell's a rich guy, successful businessman, lawyer, you can afford to hire great lawyers, and he's going to have to defend himself. How does that work, though, like the sort of, and just maybe in general, I don't know, like in terms of the expectations of, you know, if people at the Fed are going to be subject to criminal proceedings or charges or subpoenas

or whatever, the obligation or the incidence of expense for these defenses. What does the law say about? who has to pay for these things? Yeah, the law does not permit the agencies to pay for this in any way. And so the officials are on their own. The legal staff at the Board of Governors cannot represent Powell in a proceeding being brought against him by the Justice Department. They can't represent him in a removal action by the president. And so these matters require you to hire your own counsel.

And there are organizations that arrange for lawyers to represent people in these positions pro bono or will pay the legal fees. But it definitely has an impact on who can, you know, serve in the government. This is part of why the stakes of this are quite high. This sort of thing scares people away from government service. and leads to resignations. Recall over the summer that, you know, Governor Cuggler resigned abruptly and without explanation, six months before the end of her term.

And I think there's a fair amount of information in the public domain now that she was also being investigated. And, you know, Alvaro Badoia, for example, was a commissioner on the Federal Trade Commission like Rebecca Slaughter, who was removed by President Trump in the spring. and, you know, he had to go out and get another job. And so he can no longer sue to be reinstated in his current job. You know, he can only sue for damage now.

Rebecca Slaughter has held out to try to get reinstated, but it requires her not to work right now. And not everybody can do that. And that's part of the issue here is when the U.S. federal government, you know, throws its full weight against an individual, very few people can afford personally, financially, to, you know, to fight back. And so a lot of people are frightened and a lot of people don't stand up. And so part of the story here is all of the sort of bullying that doesn't have to happen because people, you know, on their own, change their behavior to avoid drawing the ire of the White House.

Just real quickly, I recall, you know, of course, at the beginning of this term in office, Trump got these settlement agreements with major law firms. I believe Williams and Connolly was not one of them. But does that create an additional complication of like people fearing that they can even get adequate legal defense in certain situations from law firms or from a legal community that to some extent feels itself under pressure from the administration? Yeah, absolutely. There's a lot of elite lawyers that are scared to represent people who the administration

perceives to be enemies because the administration has made clear that they will go after the lawyers who represent those people. It's not even like wink, wink, non-nod. It's pretty explicit. There are a number of firms that are representing clients who are in litigation with the administration, and they tend to. to be firms that specialize in litigation and specialize in litigation against the government.

So like a Wilmer Hale is a firm that represents routinely clients that are in litigation with the government. So it's a natural posture for them to take on the case of say an individual who's in litigation with the government. But firms that aren't otherwise in litigation with the government, you know, in litigation with the government, may decline to represent clients like this altogether. And that is also a big problem that goes that goes beyond this specific case. So, Leav, I know you're not sat in front of a Bloomberg terminal

right now, but Joe and I both are. I can't afford it. And we're recording this, you know, early on Monday morning. And the market reaction has been, you know, negative. So we've seen stocks are down, yields are up a little bit. Gold has been rising. But we haven't seen, you know, panic in the market. Certainly, if you look at the yield on the long bond, which is where you would expect a lot of concerns about central bank independence to actually show up, it's not, you know, selling off massively. What do you think about the market reaction at this point? Or let me phrase it another way, even though we've now had, you know, basically a year of concerns about central bank independence and the idea that Trump is going to push for lower interest rates at a time when perhaps

they're not warranted. The market's kind of been shrugging, right? We haven't seen a huge reaction in things like tips and stuff like that. What's going on here? What accounts for maybe the disconnect between some of the commentary, which is very worried about the future direction of independence versus the actual short-term market action? I think that the way the market prices, this sort of potential non-linearity, sort of regime change in our monetary and financial architecture is, it's a bit like what they say about bankruptcy. It happened gradually and then suddenly. I think that as long as the the board continues to, in fact, be controlled by non-Trump appointees, you're not going to see a lot of market pricing reaction. But if and when, we could reach a sort of tipping point where there's a sort of rapid and dramatic negative reaction. I don't know that we will reach that.

You know, it felt like we might have been approaching one over the summer leading up to the cook firing. And then there was a real step back from that by the administration. But I think we're still several seats on the board away from the market seriously considering and pricing in a central bank that engages in sort of an inflation tax-based policy or monetary financing. or something like that. I also think that there's a lot of issues being raised right now that this policy is about that aren't really related to value of the dollar and the excessiveness or appropriateness of the monetary policy stance. The central bank is a very powerful organization that carries out a lot of other responsibilities, which could potentially be weaponized by a board in control of the White House that would have no effect on the value of the

dollar, you know, the whole payments system, the sort of financial infrastructure backbone runs through the Federal Reserve and putting that infrastructure in the hands of an actor that's willing to abuse it is very very dangerous, but isn't going to change the value of the dollar. And so, you know, not everything that happens with respect to the Fed, we should like, you know, calibrate how concerned we are based on whether we're seeing, you know, the long bonds move. Setting aside precedent or whatever, you know, I think you could. make a really good argument that the monetary functions of the Federal Reserve, the FOMC, the rate setting committee, that's under the purview of Congress. This is the power to coin money

in a different version. It's quasi-fiscal in nature, especially when there's targeted direct lending programs, et cetera. On the other hand, you know, I think you could, the supervisory stuff, you could say, well, this is executive branch stuff. This is about enforcement of the law, etc. How does it done, like, are the, how interlinked, I think actually does a lot of your work, how interlinked are these two functions, the, the supervisory stuff and the monetary policy setting such that the Fed can't really be cleanly described as belonging to one of those two branches of government? It's a very deep question. My view on this is that monitoring. monetary policy is bank regulation and vice versa, that the money supply in the 21st century

is created by investor-owned banks. J.P. Morgan, Bank of America, they're the ones actually issuing the money in circulation that people are using. And it's their expansion of the money supply or contraction that is affecting the rate of inflation and all of the macroeconomic variables. What the Federal Reserve is doing when it conducts monetary policy is changing the incentives and constraints on the collective balance sheet of the banking system to expand and contract. And the main way we adjust those constraints is through the overnight interest rate. But the overnight interest rate itself is not what's important. It's about the decisions of JPMorgan and Bank of America loan officers to expand or contract

the amount of deposits in circulation. And there are a lot of other government tools that affect that. And we have chosen, for good reasons, to focus on the overnight interest rate as the primary tool for adjusting the rate of expansion and contraction of the money supply. But obviously capital requirements, liquidity requirements. supervisory expectations all have an influence on the balance sheet of the banking system and the rate of which it expands and contracts. And so the idea that we could split these functions and that we would just have this bank regulator that isn't, you know, affecting macroeconomic conditions

is fanciful. We might hope to create a bank regulator that is not adjusting its regulatory and supervisory posture in an effort to influence macroeconomic conditions, and that that may sit only with an overnight interest rate authority, but we would have to recognize that this other organization that has the regulatory and supervisory responsibilities could perhaps even more effectively influence macroeconomic conditions by adjusting its posture. And certainly in this sort of environment, where we're trying to insulate from executive influence the rate of expansion of the money supply, you would not achieve that if you hand it over to the White House regulatory and supervisory policy

and left in an independent agency, just the overnight interest rate policy. You'd have quite a struggle between those two bodies. There's a lot of other issues with splitting them up, But I think there's just sort of the bottom line point is the money supply is bank issued. So bank regulators are fundamentally involved in monetary policy broadly construed no matter, no matter which way you slice it. All right, Lev, we could probably talk to you about this for a few more hours, but we're going to have to leave it there just because we want to get this episode out as soon as possible.

But thank you so much for coming back on all thoughts. Really appreciate it. Thank you for having me back. Joe, that was such an interesting discussion. Obviously, there's the sort of short-term developments of what will and won't happen right now, but also I guess the long-term meditations on the relationship between the Fed and the U.S. government, the federal government, I find very interesting as well. And it is true, you know, in a high interest rate environment,

interest rate payments become a huge, huge chunk of the federal government spending. And so interest rates become much more of a constraint on what the U.S. government can and actually cannot do. And so to some extent, I guess it's unsurprising that Trump would go after this as a limiting factor. What he feels as a limiting factor on his own actions. We know that Trump doesn't like to feel limited in any way. But on the other hand, I guess the ad hocness of it all feels very, very strange and can chaotic. Totally. I mean, I think the thing that really strikes me is that, look, there's no separation of, you know, we could all accept, including people at the White House, that the

interest rate setting is an independent function and you can't fire the Fed chair and this is not part of the executive branch. They could do whatever they want. This could all be accepted by everyone. But when you bring in the thought of prison time, which let's be honest, that's what a, you know, potential criminal charge is, I mean, then you're striking it something much deeper than just, well, what do the court say about where the Fed sits within the three branches of government, right? I mean, then you're really into, you're into some new territory here. Right. And also, I mean, we talked about it, but the idea that people are going to have to pay their own legal fees for all of this is going to have a massive chilling effect on anyone

who's even thinking about going into public office at the, point. And I don't know, you know, how you kind of fix that. I'm always disturbed by, you know, like I'll meet very impressive people from time to time. They're very charismatic and they have interesting thoughts about policy. And I'm like, hey, you ever thought about running for office and no one ever says yes? Like no sane person. Seriously, do you like, can you think of a sane person you know that would subject themselves to public office right now of any sort? No, I mean, this is the classic problem with public office is everyone who's in it shouldn't be, right? That's the cliche. Yeah. It's just like, you'd be so crazy.

It'd be so crazy. Sitting and said, going to prison, just like no one I know who is a two brain cells. No, that's a little bit unfair, but three brain cells would like think like, oh yeah, I really want to run for office right now. Like we are truly selecting for, you have to be a real sociopath, basically. And I don't know that a government of sociopaths is going to lead to optimal policy. Okay. Well, on that very Very fun note. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Allaway.

You can follow me at Tracy Allaway. And I'm Jill Wisenthall. You can follow me at The Stallwork. Follow our guest, Lev Menand. He's at Lev Menand. Follow our producers, Carmen Rodriguez, at Carmen Armin, Dashel Bennett, and Dashbot, and Kill Brooks.

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