Professor Justin Wolfers noted that executive pressure on central banks often preceded major monetary crises.
An economist has warned that the Trump administration's threats to indict Jerome Powell are reminiscent of the strategies used by other leaders right before plunging their countries into severe inflationary crises.
On Sunday, the Federal Reserve chair said the central bank had received grand jury subpoenas from the Department of Justice on Friday, threatening an indictment related to his testimony in the summer about ongoing renovations to the Fed's historic office buildings in Washington, D.C. “It's not unprecedented. It's a thing that tin-pot dictators do,“ economist Justin Wolfers told the BBC on Sunday. “And it's a thing that tin-pot dictators do right before starting a hyperinflation and destroying their own economies.“ Newsweek has contacted the White House for comment on the probe and the criticisms it has raised. Why It Matters Powell has said the probe—which is purportedly related to the Fed's ongoing $2.5 billion renovation project—should be “seen in the broader context of the administration's threats and ongoing pressure“ against the Fed over its refusal to bow to presidential demands when it comes to interest rates. Trump has repeatedly attacked the Fed and its chief over not lowering rates at the speed or scale he desires, while also suggesting he could fire Powell and threatening legal action against him. Many lawmakers agree with Powell's assessment and have been sharply critical of the administration for undermining Fed independence, with some threatening to stall any nomination for his replacement until the matter is resolved. What To Know Wolfers, a professor of economics at the University of Michigan and frequent critic of the administration, told the BBC that Powell's statement on Sunday appeared “entirely credible“ given the president's frequent threats toward the Fed chair. “The idea that President Trump has used his Justice Department not for justice but for recrimination is now a pattern,“ he said. “And so we're seeing not just the Justice Department used for injustice now but the undermining of an independent organization, an independent public servant, Jay Powell, who's been exercising his independence in the interests of the American people rather than the political interests of the president.“ Federal Reserve Chair Jerome Powell testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on February 11, 2025. Wolfers previously warned that central bank deference to presidential authority had undermined economies elsewhere. A notable case is Turkey, where President Recep Tayyip Erdogan fired and replaced central bank governors with more dovish officials who—against the wisdom of economists—aggressively cut rates, resulting in annual inflation climbing over 80 percent for several months in 2022. Wolfers pointed to Venezuela and Zimbabwe as similar examples of executives exerting pressure over monetary policy to disastrous ends, but he said that in the case of the U.S., such a situation was unprecedented. Other experts have reiterated Wolfers' warning. Harvard economist Jason Furman wrote on X: “Some countries that have prosecuted or threatened to prosecute central bankers for the purpose of political intimidation or punishment for monetary policy decisions: Argentina, Russia, Turkey, Venezuela and Zimbabwe.“ What People Are Saying William Silber, a former senior economist with the president's Council of Economic Advisers, told Newsweek: “I can't say whether Powell's testimony warrants the charges by the Justice Department. However, Trump's multi-pronged attack on the Fed is great cause for concern.“ Justin Wolfers, a professor of economics at the University of Michigan, told the BBC: “With those other countries I mentioned, the Venezuelas and Zimbabwes and Turkeys, what happened was a populous strongman came to power with an absurd view of the world and not enough checks and balances. And as a result, they got to destroy the economy and destroy the legal and political institutions in those countries. The question is, does the U.S. have sufficient checks and balances to prevent its current leader from following down the path of those other tin-pot dictators?“ Democratic Senator Mark Warner of Virginia, a member of the Senate Banking Committee, wrote on X: “The Fed was designed to operate independently, insulated from political pressure, so that it can make tough decisions based on data and the long-term health of the economy, not the whims of any one president. That independence provides the stability that markets, investors, and everyday Americans rely on. Using the threat of criminal prosecution to pressure the Fed over interest rates is a direct assault on that foundation and puts the economic security of millions of Americans at risk.“ David Hogg, a political activist and former co-vice chair of the Democratic National Committee, wrote on X: “We are living in incredibly dangerous times. If Trump gets to start dictating interest rates inflation will skyrocket. I can't over state how dangerous this is.“ Republican Senator Thom Tillis of North Carolina said in a statement: “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. I will oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.“ What Happens Next In an interview with NBC News, Trump said he had no knowledge of the Justice Department's probe into the Fed, but he said of Powell, “He's certainly not very good at the Fed, and he's not very good at building buildings.“ Powell is due to step down as Fed chair in May, though his separate, 14-year term as a governor means he may continue serving on the central bank's board following this departure.
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