Jack and Bob discuss the subpoena targeting Federal Reserve Chair Jerome Powell, the legal limits on presidential control of the Fed, Senate resistance, and the potential consequences for markets and the administration heading into the midterms.
Thumbnail: Federal Reserve Chairman Jerome Powell delivers a statement regarding a Department of Justice subpoena of the Federal Reserve, January 11, 2026. (Federal Reserve.)
This is an edited transcript of an episode of “Executive Functions Chat.” You can listen to the full conversation by following or subscribing to the show on Substack, Apple, Spotify, or wherever you get your podcasts.
Jack Goldsmith: Good morning, Bob.
Bob Bauer: Good morning, Jack.
It’s Monday morning and we’re going to discuss the news about the subpoena that was issued by the U.S. Attorney, the District of Columbia, to the Federal Reserve apparently late last week in connection with the testimony of the Chairman of the Federal Reserve, Jerome Powell, last summer concerning the renovations of the Federal Reserve. Obviously, there’s been lots of acrimony between the president and Powell. Trump has been pressuring and complaining about Powell for a long time. The subpoena is an extraordinary escalation of that.
President Trump claimed that he knew nothing about it, even though two weeks ago he said that the government was thinking about suing Powell in connection with the renovation. He didn’t say more. President Trump also said yesterday, I wouldn’t even think about doing it this way, whatever that means, but it doesn’t strike me as a credible statement given that he’s presided over an overtly weaponized Justice Department.
Bloomberg reported that Bill Pulte, the head of the Federal Housing Finance Agency, the person who has been agitating for various forms of weaponization by the Justice Department and who was behind the Lisa Cook for cause firing, was behind this in some way. Chairman Powell yesterday issued an extraordinary statement in which he said this had nothing to do with the renovations and it had everything that it was a pretext. I’m going to quote now:
He said that this whole matter about renovations or pretexts, and quote, “the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.”
Yesterday also, Senator Thom Tillis, Republican on the Banking Committee, said he would oppose any nominee of the president to the Fed. There’s an opening on the Federal Reserve now.
One of the seven governors, there’s an opening and Powell’s term is up in May as the chairman. So it had looked like Trump was in a position by May to nominate and confirm someone as a new governor and to replace Powell. Not clear what impact this has on that.
The last thing I’ll say is even though Powell’s tenure is up as the chairman in May, he still has two more years to serve as governor. It was, it’s typical, I think, for the chairman of the Fed to resign from the board once the term is up, if not renewed, but it’s possible that Powell could stay on for two years and therefore deny Trump a second opening. So I think that’s a catch up on the news as of this morning.
What should we talk about?
Let me start by asking you this question. Will Trump now, pursuant to the for cause provision in law, fire Powell?
This could be a possible setup for that. I should, in that connection, mention one other fact. As we know, another governor, Lisa Cook, was last, late last summer, I believe, fired by the president for cause in connection with a housing matter.
That firing has been unsuccessful to date. The matter was enjoined by the lower courts. The Supreme Court refused to stay it and has oral argument on that question, I think, on the 21st of this month, so very soon.
So there’s a legal question there. It’s notable that the court did not rush to support the president there, unlike in other contexts of firings that it has. It’s possible that Trump is setting up Powell for a for-cause firing.
I don’t think it would be successful in light of what’s going on in the Cook case. Moreover, as best I understand it, I think this is right. The president technically has the legal authority at any moment to remove Powell as chairman of the Federal Reserve.
There’s no express statutory for cause protection as chair. He has statutory protection as one of the seven governors, but there’s no statutory protection as chair. Certainly, that could be an area that the president could push, so he could use this as an excuse to, although I don’t think he needs a legal excuse, to remove Powell as the chairman, but not take him off the board several months early.
I have to say, I don’t understand why any of this makes sense. Powell’s term is up in four months. I don’t see how this helps the administration on the economy.
We’ll see what the markets do today. We’ll see what the impact of it is, but I don’t understand it strategically. It’s not obvious that this was a concerted, coordinated in the White House, so it’s all a bit of a puzzle to me.
I would note that Powell is represented by the law firm of Williams & Conley, which is a powerhouse law firm in Washington, D.C., and he, presumably on the advice of lawyers, decided to take a pretty aggressive stand last night. He wasn’t required to put out that statement. He wasn’t required to write it the way he did, and so he’s digging in, which is quite remarkable.
Now, one question for you, I mean, the power to remove the chair without having to allege cause could lead, of course, he could exercise that to remove Powell. That wouldn’t address Tillis’s complaint in the Senate, and that wouldn’t solve his problem with moving the nomination of a successor to the floor, would it? It wouldn’t.
It’s still an independent issue.
Yeah. Let me emphasize, I’m pretty sure I’m right about this removal issue as chairman of the Fed, but keeping him as governor, I’m confident that the statute doesn’t provide anything, and the OLC has interpreted that type of situation to allow removal if the position atop is not statutorily protected. Certainly, it would be open to the administration to make a gambit to try that.
They would have a powerful legal argument, but as you said, it wouldn’t impact Tillis’s point because Tillis is concerned about the attack on Fed independence by the president. So I just don’t see how this helps the administration at all. It hurts.
We’ll see what happens, what the impact is on markets—on treasuries and the like— but politically in getting his person on, whoever that will be, whoever’s nominee will be getting that person on the Fed and as chairman strikes me as much harder this morning than it was 24 hours ago. Do you agree with that?
I completely agree with that also. I’m going to approach this as someone who had a stint in government as a lawyer and thinking about the lawyers who were trying to defend the administration’s legal position before the Supreme Court in the removal case that, as you point out, is going to be argued in January. I can’t imagine any one of them is going to be happy that this step was taken while the court is deliberating on this case, on the Cook case.
It just seems to me that it, tell me if I’m exaggerating, we will never know, but it is hardly the foot that they wanted to put forward as they’re attempting to put a credible and they hope persuasive position to the court in the Cook case.
Yes. I mean, it just deepens the notion that the president is weaponizing law enforcement, weaponizing the firing power and anything at the margins, I think he’ll be hurt on this. The president has extraordinary prerogatives.
The for cause standard, whatever it means, and we’re going to find out is not a super high standard. I think there’s a legitimate question about the independence of the Fed. Other presidents have chafed at an independent Fed.
There are all sorts of legitimate issues here, but the way that the administration has gone about it, I don’t think it’s going to help their legal case. It could conceivably impact, although I doubt it, the Humphrey’s Executor matter and how the court is thinking about structuring the unitary executive that it’s clearly in favor of, but I don’t think it’s going to help in the four cause case at all. I wouldn’t imagine the Solicitor General’s office is terribly happy this morning.
No, it occurs to me that there’s an overlay here where they’re taking their unitary executive case and they’re damaging it by introducing the unitary weaponizing executive into this debate in a way that it seems to me is hardly helpful to their position. On the question of reasons, you say, why in the world would they have done this? Here’s one argument: Because it is a remarkable thing to do.
They’ve been thinking of doing it for some time and of taking aggressive action against Powell. As you mentioned, Trump at one point said he was going to, they were thinking of suing him. It wasn’t clear what he meant by that, but they didn’t.
And now they have served these subpoenas and so the battle is on. The only political, I guess I’ll put it that way, the only political reason that I can think of, the strategic reason why they would do that, is that they’re beginning to become extremely agitated about the impact of the economy on the midterm elections. So we’re into this new year, within less than a year, the midterms are going to take place.
He’s made it very clear he’s extremely worried about losing the House. Most presidents would be anyway. In his case, he believes that the stakes are even higher.
He said, they’re going to impeach me if the Democrats regain control of the House. And it may be that they think, and I don’t know whether it’s a matter of economic reality or economic theory, this is accurate. They may think they need the Fed to move much more aggressively and raise the rates—excuse me—lower the rates and juice the economy to stand any chance of protecting themselves against the damage that his ratings on the economy are currently doing.
And the polling data on this has to be very discouraging to the administration. Is that a plausible theory? It’s the only one I can think of.
I certainly don’t know, but it strikes me as not obviously rational because I don’t see how this gambit is going to lead the Fed, is going to pressure the Fed into lowering interest rates. It would be, I mean, who knows? It’s very hard to assess the Fed’s motivations when they do these things, how much they are subject to pressure or not.
But Powell’s statement yesterday was basically drawing a line in the sand saying, I won’t be bullied. That’s the first point. Second point is, as we just noted, it makes it harder, not easier for Trump to get his person on the Fed.
I just don’t see how—and also, you know, time’s running short for anything the Fed would do to have an impact on the economy that’s going to impact the election. So I just, again, I’m not an expert on the politics of this, but I just don’t see that angle and how it would be part of a rational plan. But it’s not obvious that this was . . . clearly the president has been agitating for this, clearly he sends signals throughout the administration, clearly there’s a decentralized, weaponized structure to the administration.
It’s not clear how centrally planned this was and it’s not clear to me that it’s rational for that end. But maybe there’s something I’m missing.
Well, I don’t think you are. I think the reasoning may be very skewed, but politicians sometimes don’t act very rationally when their deepest interests, like, for example, holding onto office or holding onto their best political fortunes, may be at stake. The other question I have is, is Tillis going to find allies in the Congress on this?
He’s not running for re-election. So he’s found new space in which to operate and speak freely on these issues. And the question is, other members of Congress are going to have to make a decision here.
The five Republicans who bolted on the War Powers vote the other day and chose to support Democrats in bringing the question of the War Powers resolution on Venezuela to the floor were immediately threatened by the president, who said they shouldn’t be, I don’t have this quote in front of me, but effectively they’re done for as far as he’s concerned. He doesn’t think they should be elected to anything. So there’s always a fear of crossing the president.
But one question in my mind, I’d be interested in your views on this, is this degree of disorder, if you will, constant conflict, with the potential that we’re going to start seeing signs, and there are early signs, that this isn’t sitting well with the markets, is going to have an effect on constituent responses to what’s taking place in Washington and how it’s affecting the economy. And that in turn could mobilize some opposition to Congress, even in the face of that fear factor. Now, it’s hard to tell.
It’s hard to tell how long those effects would have to work their way through. What do you think about that?
Again, hard to assess. We’ve been saying for a long time that the closer the midterms come and the more that the member, the congressional member reelection imperative, that interest departs from the demands of the president, the more we’re going to see this type of plea. But then we started to see it more and more in the last few months.
But I just, I don’t, I don’t know, you know, the down in the weeds politics of particular members, for example, on the banking committee. I don’t think the banking, I think if Tillis votes for the Democrats, I think it’s, I think it’s hard for a nominee to get out of that committee. So I’m not sure how many more, how much more Republican support the president could bear to lose.
But let me just say a couple of things broader, more broadly about that. This type of, it seems, political use of the law enforcement power and the criminal law enforcement power. There are basically two checks on it.
I mean, there’s the check of the grand jury and the trial, but that is kind of down the road. There’s also the market check. And we’re, you know, to date, the market check has, the market has not reacted, at least not in a violent way to other agitations against Powell by Trump.
So we’ll see what happens this morning. And then as you’re suggesting, there’s the congressional piece. And we’re going to see whether we’re starting to see Congress members in the Republican party stand up to the president a little more.
He’s raising the stakes. We’ll see. It’s going to be interesting to see today what, how the other Republicans in the Congress, especially in the Senate react.
Let me just say one more thing that I forgot to include. That is the inspector general of the Federal Reserve is Michael Horowitz, who was the long time, very credible, well-respected inspector general in the Justice Department. He moved over to the Fed, I think last year.
And he’s now conducting an investigation of the renovation. Powell asked him, I believe it was last summer, to conduct a full investigation of the integrity of the renovation. So that is going on in parallel.
To the subpoena, just to mention, because it’s not clear how far along he is or whether or when he might issue a report. But that’s another factor in this.
Well, all the more reason to question the motives. I mean, I don’t know. I don’t know anybody’s going to really contest the motives behind this move to proceed criminally against Powell.
And that is, there is already a mechanism of accountability and a record that’s presumably being established about how the renovation was being conducted and whether there was any kind of misconduct in these cost overruns that the president alleges that he’s concerned about. And yet, nonetheless, they forge forward with this attack in the service of these subpoenas. And let me ask you, let me ask you another question.
And again, I hope this isn’t in the realm of, you know, completely rank speculation or drawing connections or trying to tie two points together that probably should not, can’t be rigorously tied together. He just completed what he absolutely believes was a triumph in Venezuela. And just a few hours ago, I guess yesterday, he posted a modified Wikipedia page, sort of a mock Wikipedia page in which he described himself as the acting president of Venezuela.
He’s also been issuing threats in various directions against Greenland and Colombia briefly until apparently he reached some kind of a peace with the president of Colombia for the time being. And of course, he’s made threats about Iran and intervention there, depending on how the government proceeds in dealing with these protests on the streets. We could be dealing, could we not, with somebody who’s just in this immediate space has concluded that he can do whatever he wants, that the use of force here, if you will, and this isn’t a military use of force, but the exercise of raw power is going to achieve his ends.
And so it’s hard for me not to draw, you know, a sort of some kind of connection as we think about what mentality has gripped the White House between, you know, his ability to impose his will in the Caribbean and south of the border and his opposing his will domestically. Now, again, is that entering into a realm of reasoning that just is sort of beyond what we ought to be talking about here?
I mean, clearly. So here’s what I think. The president has much more leeway in the foreign affairs, military war context to bark an order and see the order carried out. And this is why Trump has, I think, been gravitating towards foreign affairs, military intervention in part because it’s an area where he can realize his monarchical dreams of basically being able to run the world, to do what he wants and the like.
And that’s not an exaggeration to say that’s what his aim is, because they’ve proclaimed that he’s proclaimed that nothing checks him in the international realm other than his own morality, as I think he put it. I just think it’s and that mentality might be carrying over into the Fed. Again, it’s not clear how centralized and rationed and thought out this was, but it’s just a different situation in the domestic realm because of the reasons we’ve discussed.
Not clear what the markets are going to do. Not clear also, though, that he’s going to be able this is going to help him with the Fed because Powell’s back is up now. Powell might not leave in May, even if he retires from the chairmanship.
It’s not clear Trump’s going to be able to get his replacement on there. This action, I think, unless we’re missing something, makes things pretty clearly worse for him in his effort to control the Fed. At least we may be missing something, but it just seems to me that this is going to be self-defeating in terms of coercing the Fed to bow to his will.
So I just think on many domestic matters, not all, the president has a harder time immediately implementing his will compared to foreign affairs. And that’s why threats against Greenland, Venezuela, running Venezuela, maybe invading Colombia, maybe bombing Iran. These are all things that at least if the DoD culture can continue to be shaped as they’ve been doing, that the president can basically execute when it’s much harder to do so in the domestic realm, I think, especially on the Fed issues.
And yet it may be increasingly hard for him to accept limits. I mean, this is a president who notably said Article 2 permits him to do whatever he wants, that he has, quote unquote, total authority as president. And as he sees success in one realm, he may find it hard to believe why he can’t achieve the same success in the other.
And speaking of the use of military force, of course, he has attempted, and here the Supreme Court has thrown up obstacles, he’s attempted deployments of force in American cities and says he’s going to, even though he’s now withdrawn from Los Angeles and Portland and Chicago, he said he’s ready to go back in as necessary. So it’s just hard not to see a total environment of willpower that he believes that he can bring to bear in all these circumstances, just the raw exercise of power to affect his own will. But I’m not contesting your point.
Obviously, he has much, much more operating room as a matter of law practice and precedent in the international realm than he does domestically.
He basically lost that round on the National Guard. I mean, really extraordinarily lost that round. And there’s judicial review there.
Again, as I’ve written many times, the president has other legal cards for domestic deployment of the military. But there’s going to be judicial review there, and the political stakes are much different. And there’s not going to be judicial review of a bombing of Iran, or even probably, I don’t think there’s going to be an invasion of Greenland, but there’s just not going to be a judicial check about foreign military intervention the way there is about even domestic military deployment or other domestic matters.
It’s just, again, it’s too sharp to distinguish between foreign and domestic affairs because many times they blur, but the president is more constrained in the domestic realm than he is in the foreign affairs realm.
Certainly, but I’m glad you mentioned the other cards he has to play and that he hasn’t played. He said just in the last, and I’m speaking roughly here, 10 days to two weeks, that he may need to turn to the Insurrection Act, which so far they haven’t attempted to put into action. And there, you have a statute that you and I have written, and we’ve worked on this topic that just seems to confer on the president extraordinary authority, ill-defined terms, no congressional consultative provision, no limits on troop deployment if needed to address conspiracies, combinations, domestic violence, insurrection, all these terms that appear in the statute.
So he hasn’t finished testing the limits of his ability to work his will in the United States with potentially the use of armed force. And obviously, it’s beyond our remit right now or beyond our topic right now to talk about what’s taking place and how the public’s reacting to the use of ice in American cities and the questions that have been raised about the use of force in that context. But this is quite the period in the next 24 hours, at least in the Fed situation, with the reporting I suspect we’ll still see is going to be quite revealing and maybe faithful.
No shortage of topics for us to talk about. Never.
Thank you, Bob.
Thank you, Jack.
