The administration explicitly targets law firms that represent its opponents, creating a climate of fear. This discourages many elite lawyers from taking on such cases, potentially compromising the ability of officials to secure adequate legal defense and threatening the principle of representation.
The criminal indictment threat against Fed Chair Jerome Powell is not merely a dispute over central bank independence. It's a tactic to make an example of a high-profile official, signaling to all government employees the consequences of defying the administration and forcing out perceived opponents.
The market's calm reaction to threats against the Fed's independence is not disbelief, but a reflection that a "tipping point" hasn't been reached. As long as the board's composition is stable, markets remain subdued, but a sudden change could trigger a rapid and dramatic repricing of risk, similar to a bankruptcy.
The Federal Reserve's power extends beyond setting interest rates to controlling the nation's core financial infrastructure. This supervisory power could be weaponized by a politicized board in ways that don't directly affect the value of the dollar, meaning bond markets wouldn't signal the danger.
When government officials like Fed Chair Powell face legal action from the administration, they cannot use agency funds for their defense. This high personal financial burden creates a powerful chilling effect, scaring qualified individuals away from government roles and encouraging resignations.
Monetary policy and bank regulation are two sides of the same coin. Since private banks create money through lending, any regulatory action (like changing capital requirements) directly influences the money supply. Giving the executive branch control over regulation would undermine an independent monetary policy.
The pressure on Fed Chair Powell aims not only to replace him as chair before his term ends but also to force him to vacate his governor seat, which runs until 2028. This would give the President an extra board appointment, accelerating control over the Fed's seven-member board.