On Sunday night, Federal Reserve chair Jerome Powell announced that Trump’s Department of Justice had served the Fed with grand jury subpoenas, threatening a criminal indictment of Powell.
The subpoenas concern statements Powell made to the Senate Banking Committee last summer about renovations to the Eccles Building—the Fed’s headquarters in Washington, DC.
Early last year, Trump’s FHFA Director Bill Pulte identified the Fed’s admittedly-opulent, multi-billion dollar renovation project as an opportunity for the administration to put serious pressure on the central bank. The president ran with it, which culminated in the viral argument between Trump and Chairman Powell over the project’s total cost as they both sported hard hats at the Eccles construction site.
The indictment, however, doesn’t accuse Powell of mismanaging federal funds when overseeing the renovation but of lying to Congress about some details of the renovation. In a video response to the issuance of the subpoenas, the Fed chair accused Trump of deceptively feigning concern about the excesses of the project as a “pretext” to pressure the Fed to adopt his preferred monetary policy.
That is obviously the case. Anyone with even the slightest familiarity with Donald Trump knows he has no aversion to opulent and extravagant construction projects. If anything, this specific renovation is far more tame than other remodeling projects the president is overseeing. It’s also hard to believe that, days after saying he wants to see the military budget jacked up by half a trillion dollars a year, Trump is genuinely concerned that “mismanagement” of this one construction job might have cost taxpayers a bit too much money. This is obviously about Trump’s ongoing frustration that the Fed is not cutting rates as quickly as he wants.
But Trump is not the only one being deceptive here. As I laid out back in September, the concerns Powell and his many allies at the Fed, in Congress, and in the media usually cite when decrying Trump’s attempt to “takeover” the central bank are just as hard to believe as Trump’s aversion to gaudy construction.
The real fear, from the political establishment’s perspective, is not that Trump will “politicize” the Fed, lead it away from its “data-driven” and “non-political” decision process, and turn it into some politicized arm of the federal government that warps the economy in ways that benefit those close to power, but that he will make it impossible to hide the fact that that’s what it already is.
In other words, the political establishment is primarily concerned with the optics that will result if Trump gets more aggressively involved with the Federal Reserve. The joint statement, published on Monday by every living Fed chair and numerous former Treasury and monetary officials, said so directly. In the first sentence, they describe the “public’s perception of [Fed] independence” as critical for the Fed’s mission.
This is nothing new. Carefully managing public perception has been a primary focus of the people who created the Federal Reserve system and who have managed and benefited from it in the 111 years since. After all, they were—and are—effectively robbing the American people, and it’s a lot easier to keep on robbing people if they don’t realize they’re being robbed in the first place.
The small group of politicians and bankers who initially conceived of and began working to create the government-backed banking cartel they would eventually name “The Federal Reserve System” kept their work hidden from the public—going so far as to stage a fake quail-hunting trip in Georgia as cover for their first in-person meeting.
They then decided at that meeting to establish the cartel over the Christmas holiday, when the public would be distracted. It got delayed a few years for political reasons, but was eventually signed into law by Woodrow Wilson on December 23, 1913.
Because Americans would likely—and rightfully—have been suspicious if an all-powerful centralized monetary authority had suddenly popped up and taken over the American banking system while nobody was watching, the early Federal Reserve system was highly decentralized. It took the form of twelve regional banks that could be more easily passed off as a dispersed series of backstops for the nation’s banks than some brand-new, all-powerful federal monetary authority.
But over time, the Fed’s power became increasingly centralized in the Board of Governors, working out of the Treasury Department’s building in DC—especially during the Great Depression. That was a problem for officials trying to maintain the perception that the Fed was a purely non-political organization, not concerned with or affected by the often-chaotic cycle of presidential politics. So, to address that, in the mid-1930s, Congress authorized the construction of a new building for the Federal Reserve—the building it resides in today.
The Federal Reserve Board took the design of the new building very seriously—the whole endeavor was about optics, after all. They launched a national competition to select an architect. On the call for submissions, the Board laid out their vision for a building that was clearly “governmental” in character, but without all the “decorative or monumental” elements found on other federal buildings.
The winner, a French-born architect named Paul Philippe Cret, won with a so-called “stripped classical” design that played off the famous DC architect Robert Mills’s classical design of the Treasury Department building, but without the ornamental elements that Americans associate with the other government buildings on the National Mall.
Put another way, the Fed was very deliberate about using the design of their new building to reinforce how they wanted the public to see them—as an institution with all the power and authority of government, but that is also separate and unique and stripped of all the pomp, ceremony, and drama of the rest of the federal government. It’s not surprising that the most obnoxious internal costs the Trump administration found at the Fed and brought attention to were for building renovations. Most people don’t understand just how seriously the central bank has worked to manage this aspect of its public brand.
But it’s still just one aspect of a broader effort. The actions of the Fed mattered too. And, during World War II, the Fed held interest rates low explicitly to help the Treasury finance its war effort. That wasn’t particularly controversial during the war, but these were also clearly not the actions of an independent, non-political entity. If the central bank wanted those optics back, they had to do something.
The official narrative is that, after a series of meetings and public statements, the Fed and Treasury agreed to bring their wartime relationship to a close and formally severed the ties between the two agencies in 1951. This is often called the Treasury-Fed Accord, and it’s presented as the beginning of the period of genuine “Fed independence” that we’re still experiencing today. But it wasn’t.
As Jonathan Newman demonstrated last year by citing Fed and Treasury officials in their own words, all that really changed with the 1951 Accord was the way the Fed described itself. Not only was there no legal change, there was no meaningful change in behavior. The Fed has continued to help the Treasury fund wars and all the rest of its ever-growing slate of federal programs, just like it helped fund WWII, only now it does so while calling itself “independent.”
Fed independence is simply a branding choice meant to present the Fed in a certain light—just like the Eccles building. It is not a legal constraint on the central bank or even a principle that meaningfully manifests itself in monetary policy. It is a lie that has been crucial for placating the public as the Fed has grown more and more powerful in the decades since with drastic and unnecessary power grabs like the severing of the dollar’s tie to gold in 1971, Greenspan’s decision to permanently prop up the financial sector, and the precedent-shattering monetary responses to the recessions in 2008 and 2020.
Again, Trump’s “takeover” of the Federal Reserve and escalating war with Jerome Powell does not and will not represent a fundamental change to the Fed’s role in the economy and government. He merely wants to drop the false pretense of a “non-political” Fed and accelerate the kind of crony, inflationist, stock-market-amplifying, empire-fueling monetary policy the establishment has been carefully, but relentlessly, conducting for decades.
But doing so—especially as quickly and bombastically as Trump wants—risks completely derailing the very deliberate public image the Fed and its allies have worked so hard to build up and maintain. And that public image is not just some aesthetic preference for the Fed, it is a major source of its power.
It is a lie meant to prevent the American people from noticing or caring about all the ways the Federal Reserve is ripping them off to enrich the political class. Trump’s monetary policy will bring a lot of pain for the American people because, remember, it’s an acceleration of this awful inflationist status quo. But if Trump meaningfully derails that lie, some serious good can come from this.
