Legal expert: Move likely means Powell will remain on Fed board until 2028
Just two days after receiving credit for a major drop in mortgage rates, the Trump administration is now facing criticism for a move that again questions the Federal Reserve's independence.
Mortgage rates plummeted into the 5s on Friday after Trump ordered Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds.
Late Sunday night, Federal Reserve chair Jerome Powell announced that he was the target of a Department of Justice criminal probe.
Powell announced the investigation in a video on the Fed’s website. He said the investigation had nothing to do with construction cost overruns but was instead aimed at controlling the central bank and threatening its independence.
Treasuries spiked Monday morning but began to subside by afternoon as several high-ranking Senate Republicans blasted the idea of a criminal investigation into Powell. While many criticized his decisions at the Fed, they rebuffed the notion that he was a criminal.
Kenneth Katkin (pictured top), law professor at Northern Kentucky University’s Chase College of Law, said Powell likely decided to bring this into the public light because he knew the pressure from the administration was going to continue.
“I think Powell just decided that the pressure was going to never end,” Katkin told Mortgage Professional America. “I think that's what made Powell make the decision. Instead of just ignoring the whole thing and doing what he does, and not worrying about all the pressure being directed at him, I think he decided, this campaign is going to be relentless, and so he needs to push back.”
Trump, in an interview with NBC News on Sunday night, denied knowing about any investigation.
Staying on the board
Katkin thinks that Powell was already well aware of the support he would get by making this investigation public.
“He announced that he's being criminally investigated, and then he already had this video ready to go that he released to the public,” Katkin said. “It seems there was already a lot of political support for his stance here. Immediately, Senator (Thom) Tillis has announced that he's going to try to put a hold on any future Trump nominees to the Fed, unless this criminal investigation ends.”
The move comes a little more than four months before Powell’s term as Fed chair comes to an end. Traditionally, once the Fed chair leaves that position, they resign from the board as well. However, Katkin thinks this move may actually force Powell to remain through the end of his term in January 2028.
“It would be typical for most chairs to actually resign from being a governor when their chairmanship ends,” he said. “That's what they usually do, even though they're not required to do that. I think Trump actually just made that impossible. He probably has to stay on and not resign because he doesn't want to look like he was pushed out, or like he had to leave because he's actually a criminal.
“I think it makes it necessary for him to stay, so it seems very counterproductive to me. If Trump wanted to get rid of him, probably the best thing to do would have been just to be nice to him and compliment him for doing such a good job. He probably would have just resigned in May, but I think he's likely to stay on the Fed for longer than that now.”
Katkin said it’s hard to know exactly what is going on with this investigation because none of those documents have been made public by the Justice Department. In fact, if not for Powell’s video on Sunday evening, it might not have come to light for a while.
“There are aspects of it that are not completely knowable, because there are no documents from that that are public, and the Justice Department hasn't said anything about it,” Katkin said. “Ever since Trump's efforts to fire Janet Cook and his constant jawboning against the Fed, he's ratcheted up this pressure campaign. Powell is the one who decided this is the moment when he's going to push back.”
Cook case pending
The case as to whether Trump can fire Cook is scheduled to be heard by the Supreme Court in January. Katkin doesn’t think that impacted Powell’s decision to go public with this investigation.
“I don't think he was worried about that, because his (chair) term ends in May,” he said. “The Cook case probably won't be decided until March or April, and it would probably make no difference. If the court determines that Trump can fire Cook, and then after that, Trump fires Powell. He's only firing Powell a couple of weeks before he was going to go.
“I don't think this is about Powell's personal stature at the Fed or his Fed chair, but I think it's more about the independence of the Fed overall. He's trying to stand up for the independence of the Fed as an institution.”
As for how the Cook case may turn out when the Supreme Court rules on it later in the year, Katkin doesn’t see the Court siding with the Trump administration.
“I don't think the Court is going to side with Trump on the Cook case,” he said. “But if the Court were to side with Trump in the Cook case, then I think Powell probably wouldn't care that much that he personally is being fired in the final days when he would have been in office.”
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