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Powell and the Fed won’t be able to avoid talking about Trump forever

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Federal Reserve Board Federal Reserve Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting in Washington on November 07, 2024 in Washington, DC. 

Kent Nishimura | Getty Images

Federal Reserve Chair Jerome Powell dodged question after question at his Thursday news conference from a press corps eager to elicit the central bank leader’s thoughts about President-elect Donald Trump.

At some point, though, Fed policymakers, economists and analysts will need to account for what likely will be an ambitious economic — not to mention political — agenda from the firebrand Republican.

Trump took a dim view of the Powell Fed during his first term in office, calling policymakers “boneheads” and once compared Powell to a golfer who couldn’t putt. Powell, who was nominated by Trump in Nov. 2017 and took office the following February, largely shrugged off the criticism then, and he again deflected Thursday.

“I’m not going to get into any of the political things here today, but thank you,” Powell said during the news conference after being asked at least half a dozen times about the Trump victory and its ramifications. Powell cut the session short around 3:12 p.m. ET, a few minutes earlier than normal following the round of politics-heavy questioning.

However, dealing with the ramifications of a Trump presidency will be almost unavoidable for the Fed leader.

Among the expected policy initiatives on the way are steep tax cuts, expansionary government spending and aggressive tariffs aimed at leveling a global playing field. Trump also has threatened mass deportations for undocumented immigrants, something that could alter the labor market landscape.

How the Trump-Powell relationship unfolds this time is unclear — Powell’s term as chair is up in February 2026 — but it is likely to add another wrinkle into a delicate balance the Fed is trying to navigate with monetary policy.

Differences in policies, politics

“They’re going to get themselves in a bind here, because the communication is going to get much more difficult, and there’s going to be a new administration coming in with its own way of how to view policy,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.

“It’s not clear to me that that the Fed is going to have the same type of approach of what the [new] administration is doing, and that I think could set up a lot more tension,” he added.

LaVorgna has a unique perspective on the situation, having served as the chief economist for the National Economic Council under Trump. He could be headed back to Washington in 2025 for another stint in the White House.

Fed Chair Powell on whether the president has the power to fire him: 'Not permitted under the law'

Like Trump, LaVorgna has been a Fed critic, though for a seemingly opposite reason as thinks the central bank made a mistake Thursday in lowering its benchmark interest rate by a quarter percentage point. LaVorgna instead advocated the Fed hold off until it can get a clearer picture of a muddied economic landscape with uncertainty over the direction of inflation and unemployment.

Trump historically has favored lower rates, though that too could change if the Fed cuts and inflation rises.

“What if, going forward, the outlook becomes more mixed?” Lavorgna said. “To me, it was obvious they shouldn’t be cutting. And then President Trump I think [could] properly ask, ‘Why are you cutting when things [with inflation] actually don’t look as solid as they might have before?'”

Many economists think Trump’s policies could help stoke inflation at a time when signs are showing that, at least on a relative basis, the pace of price increases is easing back towards the Fed’s 2% target. Some of those economists already this week started marking up their inflation estimates and cutting their outlook for growth, despite a high level of uncertainty about what the Trump agenda will actually entail.

Should those forecasts come true and inflation perk up, the Fed will have no choice but to respond, possibly by slowing the pace of rate cuts or stopping altogether.

Uncertainty ahead

While Powell avoided Trump talk, Wall Street commentary following the Fed’s decision Thursday to lower rates by another quarter percentage point addressed the potential fallout.

“The upcoming year in Federal Reserve policy is going to be a remarkably interesting twelve months indeed,” wrote Joseph Brusuelas, chief economist at RSM.

In a forecast that is close to the Wall Street consensus as well as the fed funds futures market, Brusuelas expects the Fed to lop another full percentage point off baseline rates in 2025. But that outlook could be subject to change.

“This forecast is based on the economic status quo holding, all else being equal,” Brusuelas said. “Because we are entering an era of unorthodox economic populism, that forecast is subject to changes in both trade and immigration policy that could alter the path of employment, the unemployment rate and wage pressures that could cause an increase in the price level.”

While some economists worry that Trump’s policies could cause major fallout, others are taking a more measured approach given the incoming president’s penchant for saber rattling.

Despite implementing heavy tariffs that economists also feared would raise prices dramatically, inflation never topped 3% at any point during Trump’s term and in fact barely cracked 2% as judged by the Fed’s preferred indicator. Moreover, Biden kept Trump’s tariffs largely in place and even added some new ones on electric cars and other items.

Ultimately, the next round of tariffs could add about 0.3% to inflation, according to Nationwide Chief Economist, Kathy Bostjancic.

“We anticipate this should provide reason for the Fed to slow the rate of policy easing a bit, but not stop it,” she said. “Our call for substantive rate cuts over the next year would maintain the easing in financial market conditions that helps lower borrowing costs for consumers and businesses and continues to support the labor market and ongoing expansion.”

Still, the prospect of the Fed asserting its independence and moving policy in either direction, irrespective of Trump’s wishes, sets up a potential clash.

Trump previously has asserted that the president at least should be consulted on monetary policy. Fed officials, though, insist on independence from fiscal and political considerations, which could get tougher in the days ahead.

“The easy cuts have been made, and maybe December won’t be too contentious either,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. “Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?”

Economics

Two presidents compete over the worst abuse of the pardon power

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American presidents are often disappointed to discover limits to their authority, but the country’s founders intended the nearly absolute pardon power to be an exception. Alexander Hamilton, for example, believed that legislators should not be involved in the pardons process because “one man appears to be a more eligible dispenser of the mercy of government, than a body of men.” Americans might now question the wisdom of bestowing such responsibility on men like Joe Biden and Donald Trump.

Throughout American history, the use of clemency has ranged from magnanimous to contemptible. George Washington pardoned men involved in a violent insurrection against his government over a whiskey tax. Andrew Johnson granted reprieves to Confederate civil-war veterans. Draft-dodgers were let off the hook by Jimmy Carter and Gerald Ford, who also pardoned his predecessor, Richard Nixon. Recent declarations have been less high-minded. Bill Clinton pardoned a Democratic donor’s former spouse and, during his first term, Mr Trump did the same for his son-in-law’s father.

Mr Trump’s indiscriminate pardons of those involved in the January 6th attack on the Capitol understandably dominated headlines. But Mr Biden kept busy before he left. On January 20th he issued pre-emptive pardons for polarising figures like Mark Milley, the retired top general; Anthony Fauci, a public-health official; and members of the House’s January 6th committee. Mr Biden said that the pardons were not an admission of guilt so much as protection from “revenge” by the new Trump administration.

Although Mr Biden’s Department of Justice (DoJ) previously argued that immunity for presidents wasn’t needed because grand juries are “prohibited from engaging in arbitrary fishing expeditions”, and the justice system broadly is “subject to public scrutiny and rigorous protections for a defendant’s rights”, the outgoing president grew more sceptical of safeguards in the system, even with his own party in control of the DoJ. That was the case in December, when Mr Biden cast doubt on the fairness of the justice system he oversaw to justify breaking his pledge not to pardon his son.

Mr Biden’s siblings and their spouses also received pre-emptive pardons in the final minutes of the administration. Mr Trump had considered a similar move after the 2020 election but decided against it after facing bipartisan criticism. Mr Biden had no such qualms, framing the last-minute pardons as protecting the innocent from unfair prosecution. Never mind that Mr Biden’s own DoJ had investigated his brother, or that Republicans allege he had lied to Congress in testimony.

John Yoo, a legal scholar with an expansive view of presidential power, suggested that such unprecedented pardons could create new vulnerabilities for those who accept them. No longer subject to federal prosecution, recipients such as Mr Fauci can’t cite a right to avoid self-incrimination when refusing congressional testimony. “If we really want to know what happened with covid and lab leaks and federal funding…well, now Congress can find out,” reckons Mr Yoo. He also noted that prosecutors at state level, who pursued cases against Mr Trump parallel to federal ones, remain free to investigate and indict those with federal pardons.

Another little-noticed act of clemency came for Leonard Peltier, a Native American activist convicted of murdering two federal agents. For decades the case was a cause célèbre on the left. Meanwhile, the director of the FBI expressed “vehement” opposition to the release of a “remorseless killer”.  But Mr Biden commuted Mr Peltier’s sentence, citing health concerns. No doubt many of Mr Trump’s supporters will point to this decision when defending his indefensible January 6th pardons.

Those supporters also may cite Hamilton’s admonition that “there are often critical moments, when a well timed offer of pardon to the insurgents or rebels may restore the tranquillity of the commonwealth”. The difference is that such pardons were meant for a president trying to quell unrest—not to protect participants in unrest that he had condoned. Others seem to be learning depressing lessons from this: Eric Adams, the mayor of New York, who faces corruption charges, has started courting Mr Trump in recent months.

Even when Mr Trump made a defensible choice on clemency, he went about it in an unseemly way. On January 21st he pardoned Ross Ulbricht, who had been sentenced to life in prison after creating an online marketplace for drug-dealers and other criminals. Mr Trump, who had previously called for the death sentence for drug-dealers, alluded to a campaign promise to libertarians and said that “the scum” who convicted Mr Ulbricht had pursued him too.

Presidential pardon power took a reputational hit this week, deservedly. To change it requires a politically impossible constitutional amendment. Presidents could wield it more responsibly, though. To persuade them to do so would require public pressure and awareness of what a better system might look like.

While high-profile cases get the most attention, thousands of anonymous Americans remain mired in a backlog of clemency reviews at the DoJ. Mr Biden previously granted clemency to most of the federal prisoners on death row and thousands of non-violent offenders. Yet the most recent data show he leaves office with nearly 10,000 petitions closed without presidential action, up from just over 8,000 under Mr Trump four years ago. The number stood at around 500 when George H.W. Bush left office in 1993. Margaret Love, who was the DoJ’s pardon attorney in the 1990s, says it is common to see someone convicted of a minor drug offence as a teenager seeking a pardon so they can become a lawyer as an adult.

During Mr Trump’s first term, only about 11% of the 238 clemency grants were recommendations from the Department of Justice’s pardon attorney. The president typically preferred flashier cases. “I hope Trump will take a careful look at how we’re using the power,” says Ms Love. “Let’s do some stuff for little people.”

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Economics

Donald Trump has rewritten the history of January 6th

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“THIS IS A big one,” Donald Trump said as he signed a clemency order for nearly 1,600 January 6th rioters just hours after being sworn into office. By evening Enrique Tarrio, the leader of the Proud Boys, a far-right group, who had served three years of a 22-year sentence in federal prison for choreographing the attack on the Capitol in 2021, was in a holding cell in Louisiana awaiting release. Back in Miami, Mr Tarrio says a full pardon was what he expected “from day one after the election”.

The plans he made for life after liberation won’t start just yet. His first day home is “a moment of zen” before he figures out what is next for him and for the Proud Boys. To those who say that the pardons represent a whitewashing of what happened on January 6th, Mr Tarrio replies that his imprisonment in the first place was an injustice. “I understand their game, you take the opponents’ pieces off the board,” he says. “And I’m down to play that game, right? But we’re not at that point yet.” He is not “calling for it”, but he means that his team too can lock people up.

Mr Trump’s amnesty was more sweeping than its beneficiaries had expected. “This is leaps and bounds better than I could have hoped,” says John Kinsman, a Proud Boy who served four years in prison. “Never in a million years” did he think that Mr Trump would set every January 6th “hostage” free. All but 14 leaders of the Proud Boys and Oath Keepers, a militia, who breached the Capitol building, were granted full pardons. Their pardons lift penalties that typically arise from felony convictions, such as restrictions on buying guns, visiting certain foreign countries and, in some states, voting. Those who weren’t pardoned had their sentences commuted. In their cases, Mr Trump said, his team needed to do “further research”.

The outcome seemed surprising because a few days earlier J.D. Vance, now the vice-president, told viewers on Fox News that “if you committed violence on that day obviously you shouldn’t be pardoned.” Yet many who had were. Pam Bondi, Mr Trump’s nominee to lead the Department of Justice (DoJ), echoed Mr Vance’s restraint. The fact that Mr Trump overruled them suggests that the scope of his final decision was his own idea. Mr Trump said those imprisoned had served enough time.

To some on the inside, Mr Trump’s actions only reinforce their belief that he sought on January 6th to goad his supporters to sack the Capitol. “This is one of the most candid acknowledgments that what happened that day is what he intended,” says a senior DoJ lawyer. It is indeed reasonable to see the pardons as an endorsement of the mob violence that took place. In the summary of his now-dismissed case, published on January 7th this year, Jack Smith, the special counsel who investigated Mr Trump’s role, wrote that his office had sufficient evidence to “obtain and sustain a conviction”. But Mr Trump has now made sure that the meaning of the January 6th assault will be long contested. To many of the president’s supporters, the pardons rectify an injustice arising from overreach by Mr Trump’s foes.

It is unarguable that soon hundreds of people who punched police, smashed windows and broke through barricades will be home. Though many of them are ordinary doctors and businessmen, at least 200 have pledged allegiance to a militia-like group. In interviews Proud Boys across America say that jail time has subdued their movement—and watchdog groups like Miami Against Fascism agree that their power has been “severely diminished”.

Nonetheless political violence, both on the left and the right, has increased since 2021; there were two lone-wolf attempts on Mr Trump’s life during the campaign. According to an analysis by Robert Pape of the University of Chicago, the DoJ prosecuted 26 threats against members of Congress between 2022 and 2023. Yet Mr Trump’s administration may not pursue domestic radicals as forcefully as Joe Biden’s administration did. 

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Economics

Ross Ulbricht, pardoned by Donald Trump, was a pioneer of crypto-crime

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There cannot be many international crime leaders inspired by “The Princess Bride”, a cult children’s fantasy movie released in 1987. Ross Ulbricht, the founder of the Silk Road, the very first dark-web drug-trading network, certainly was. When users signed up for the website, which went live in 2011, they were greeted by a message from the founder, “Dread Pirate Roberts”, the hero of the film, explaining how the site worked. Shielded by Tor, which hides website servers, and using bitcoin to make payments, users could order all manner of goods and services without revealing personal information.

The combination of the two technologies, Tor and cryptocurrency, allowed the creation of something like an Amazon Marketplace, only for illegal drugs. Users could anonymously order parcels to their homes, without ever having to encounter a scary drug-dealer in person. Dread Pirate Roberts was its delightful outlaw organiser. Until, of course, in 2013 the Silk Road was shut down by FBI agents and Mr Ulbricht, then 29 years old, was arrested in the science-fiction section of a San Francisco public library. In 2015, after a four-week trial, he was convicted of various offences and sentenced to life in federal prison. And that is where he sat until January 21st, when Donald Trump pardoned him.

“The scum that worked to convict him were some of the same lunatics who were involved in the modern day weaponisation of government against me,” wrote Mr Trump on his social-media platform, Truth Social. The president, who has mused about executing drug-traffickers, said that two life sentences were a “ridiculous” punishment. He was also honest about his reason for the pardon. It was, he said, in honour of America’s libertarian movement, “which supported me so strongly”.

The pardon exemplifies Mr Trump’s brand of transactional politics. He originally promised to commute Mr Ulbricht’s sentence at the Libertarian Party’s national convention last May. In exchange, many of the party’s supporters voted tactically for Mr Trump over their own candidate in November. Promises made, promises kept. And yet the way in which Mr Ulbricht’s cause was taken up by libertarian voters is also revealing. As Dread Pirate Roberts, he represented a type of internet anarchism that has, with the rise of cryptocurrency, grown hugely influential.

Mr Ulbricht was caught because of a stupid mistake—he posted his own email address using an account he had used to promote the Silk Road. And yet in the case against him, prosecutors suggested he was also a violent criminal who had paid a hitman to take out an informer. What they did not reveal was that the supposed hitman was in fact a Drug Enforcement Administration agent, Carl Mark Force IV, who was using his knowledge of the case to extort bitcoin from Mr Ulbricht. The informer and his murder were fake. Mr Force and another agent, Shaun Bridges, later pleaded guilty to corruption offences.

Mr Ulbricht’s supporters use this to argue that their man was unfairly punished. According to a commentary posted on the “Free Ross” website, which operates with the support of his family, Mr Ulbricht “is a peaceful first-time offender”. Or as Angela McArdle, the chairwoman of the Libertarian National Committee, put it after his release, Mr Ulbricht was a “political prisoner”, and “one of our own”. The Silk Road, she argued, was a libertarian project, all about “economic independence”.

That is a stretch. When Mr Ulbricht was arrested, the government seized 144,000 bitcoin he had accumulated in commission on drug trades, then worth around $30m (and rather more now). He may not have killed anyone, but Mr Ulbricht was arguably the first serious cryptocurrency criminal. The Silk Road was to organised crime a little like what Napster was to the music industry. Had he not been caught, Mr Ulbricht would plausibly be a billionaire by now.

Nowadays, not only are dark-web markets still thriving, but bitcoin is also used as a means of money-laundering for more offline drug-dealing. Ransomware, a type of extortion dominated by Russian crime groups, would be impossible without it. “Cryptocurrency is foundational to modern cybercrime,” says Jamie MacColl of the Royal United Services Institute, a British think-tank. In “The Princess Bride”, Dread Pirate Roberts is revealed to be more than one man. The moniker shifts from one pirate to another. Mr Ulbricht is free again. But he is no longer Dread Pirate Roberts; now they are everywhere.

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