Tracy Alloway: Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.

Joe Weisenthal: And I'm Joe Weisenthal. 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.

Tracy Alloway: Our poor producers, you know, and they keep happening on weekends, too, which is not uh the big the big developments keep happening on weekends, but I think it's going to be a busy year for us. H 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.

Joe Weisenthal: 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 basically, this is the next big escalation in the Trump versus Fed fight.

Tracy Alloway: 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 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 uh subpoena is really about the administration's frustration with interest rate policy.

Joe Weisenthal: And of course, uh, Powell has been very diplomatic, uh, with all the criticism, really not commenting at all about, um, all of the various critiques. We're just going to do our job. We're going to do the job for the American people, etc. Basically deflecting any questions on the politics surrounding, and this is a major break. Our uh, our colleague Cameron Crise, 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, etc., 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.

Tracy Alloway: Right? And if you watch the video, I mean, Powell has uh annoyed um grandpa that has had, you know, enough of all of this nonsense just written all over his face. 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, 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 Lots podcast.

Lev Menand: Thanks for having me back.

Joe Weisenthal: 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?

Lev Menand: I think this is about more even at this point than um the central bank and central bank independence. This is an attempt by this administration to uh 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 Hakeem Jeffries or, you know, a Supreme Court justice. J Powell is a senior government official and um the administration's made quite clear uh 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.

Lev Menand: 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 um various members of the board including Powell. This is a criminal investigation which I think I think is different in kind and and should be understood to be a very different set of issues that go that go well beyond the Fed itself.

Joe Weisenthal: 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 uh 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 and this question will all get to the Supreme Court at some point. But this is sort of like a a sideways thing or a parallel thing from that. This is about accusation of a crime.

Lev Menand: 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, you know, last year were legally adequate. Right now, the courts have kept her in her job. So, he was not actually able to fire her. Uh, 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 um using the Department of Justice, which is a very different thing. Um you know that his his liberty is 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 uh of the US central bank or any you know US agency to this sort of action by an administration against a member of the government an official in the government.

Tracy Alloway: 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. uh it's not that long until we're going to have a new Fed chair. So, the idea of going after him with a potential criminal proceeding when, you know, pretty soon he's not going to be there anyway doesn't necessarily make much sense in terms of influencing actual Fed policy. But maybe it makes a lot of uh sense to your earlier point about seeking revenge against people who are perceived to...

Lev Menand: This is about things at once. I think that's right. 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. 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 um when his chair term expires, that would take a seat that Trump would otherwise be able to nominate um someone to fill. And that is relevant because uh the board at the beginning of Trump's term had seven governors on it. And those governors have 14-year 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. But if a lot of those governors can be induced to resign early, then the president can put um you know his or her own people in.

Lev Menand: But I also think it's worth recognizing that there's something going on that's um um um bigger than the Fed here. That's about Jerome Powell as a high-profile prominent government official who has not bent the knee um being made an example of so that everybody else on the board of governors and throughout the US government can see um what could happen to you if you uh 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.

Joe Weisenthal: Right? I think what's striking here is... according to uh Nick Timiraos at the Wall Street Journal, uh Jerome Powell had already hired the firm Williams and Connelly on his own dime. Powell's a rich guy, successful businessman, lawyer. He can afford to hire great lawyers and he's going to have to defend himself. How does that work though? What does the law say about who has to pay for these things?

Lev Menand: Yeah, the law does not permit the agencies to 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 um 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. This is part of why the stakes of this are quite high. This sort of thing scares people away from government service and and leads to resignations.

Lev Menand: recall over the summer that, you know, Governor Cuddler resigned abruptly and without explanation 6 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 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 eye of the White House.

Tracy Alloway: So, Lev, I know you're not sat in front of a Bloomberg terminal right now, but Joe and I both are. And the market reaction has been, you know, negative. So, we've seen stocks are down. Um yields are up a little bit. Uh gold has been rising, but we haven't seen, you know, panic in the market. 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.

Lev Menand: I think that the way the market prices this sort of potential nonlinearity sort of regime change in our you know monetary and financial architecture is it's it's a bit like what they say about bankruptcy. It happened gradually and then suddenly. I think that as long as 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 we could reach a sort of tipping point where there's a sort of rapid and dramatic negative reaction.

Lev Menand: The central bank is a very powerful organization that carries out a lot of other responsibilities which could potentially be weaponized, you know, by a board in control of the White House that would have no effect on the value of the dollar. um you know uh 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.

Joe Weisenthal: 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. On the other hand, you know, I think you could the supervisory stuff you'd say, well, this is executive branch stuff. How interlinked are these two functions?

Lev Menand: is a very deep question. My view on this is that monetary policy is bank regulation and vice versa. That the money supply in the 21st century is created by investor-owned banks JP Morgan, Bank of America. They're the ones actually issuing the money in circulation that people are using. 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.

Lev Menand: And the main way we adjust those constraints is through the overnight interest rate. But obviously capital requirements, liquidity requirements, supervisory expectations all have an influence on the the balance sheet of the banking system and the rate at which it expands and contracts. And so the idea that we could um split these functions and that we would just have this bank regulator that isn't you know affecting macroeconomic conditions is fanciful. You would not achieve that if you handed over to the White House regulatory and supervisory policy uh and left in an independent agency just the overnight interest rate policy. Uh you'd have quite a struggle between those two bodies. The bottom line point is the money supply is bank issued. So bank regulators are fundamentally involved in monetary policy broadly construed.

Tracy Alloway: All right, Lev, thank you so much for coming back on Odd Lots. Joe, that was such an interesting discussion. Obviously, there's the short-term developments, but also the long-term meditations on the relationship between the Fed and the federal government. In a high interest rate environment, interest rate payments become a huge chunk of the federal government's spending. And so interest rates become much more of a constraint on what the US 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.

Joe Weisenthal: Totally. I mean, I think the thing that really strikes me is that... when you bring in the thought of prison time, which let's be honest, that's what a potential criminal charge is, I mean, then you're striking at something much deeper. And also, 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 this point.

Tracy Alloway: 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 um who's even thinking about going into public office at this point. I'm always disturbed by, you know, like I'll meet very impressive people from time to time. And I'm like, "Hey, you ever thought about running for office?" And no one ever says yes. Like no sane person.

Joe Weisenthal: Yeah. It's just like you'd be so crazy to... 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.

Tracy Alloway: Okay. Well, on that very fun note, shall we leave it there? This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at @tracyalloway.

Joe Weisenthal: And I'm Joe Weisenthal. You can follow me at @thestalwart. Thanks for listening.