How The Justice Department Blundered In Its Legal Attack Against Fed Chair Jerome Powell

Key Concepts

• Criminal Investigation of Jerome Powell: The Department of Justice’s investigation into Fed Chair Jerome Powell regarding congressional testimony.
• Federal Reserve Philosophy on Inflation: The Fed’s belief that prosperity causes inflation and its resulting bias against strong economic growth.
• Monetary Inflation vs. Price Inflation: The distinction between increasing the money supply (monetary inflation) and rising prices (price inflation).
• Gold as an Inflation Indicator: The historical reliability of gold’s price as a barometer of monetary troubles.
• Stable Dollar Value: The argument for prioritizing a stable dollar value as the primary goal of the Federal Reserve.

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The Justice Department’s Misstep & The Real Issue with the Federal Reserve

Steve Forbes begins by characterizing the Justice Department’s criminal investigation into Federal Reserve Chairman Jerome Powell as “preposterous.” The investigation stems from Powell’s congressional testimony concerning renovations to two Federal Reserve buildings. Forbes argues this action is a transparent attempt to pressure Powell into resigning before his term expires in May and to influence a reduction in interest rates. He predicts the Federal Reserve, in an effort to demonstrate its independence, will refrain from adjusting interest rates until Powell’s successor is appointed and confirmed by the Senate.

Political Motivations & Unintended Consequences

The commentary highlights the political motivations behind the investigation. Forbes suggests the move aims to delay President Trump from appointing a new, potentially more aligned, governor to the Federal Reserve Board. Powell’s current term as governor extends to 2028, and remaining in that position would prevent Trump from filling the role immediately. Furthermore, Forbes posits that Powell will likely leverage the situation to maintain a prominent public profile, portraying himself as a defender of sound monetary policy against “ignorant, short-sighted Washington politicians.” This narrative, he believes, will dominate media coverage, overshadowing the core issues with the Federal Reserve’s operating philosophy.

The Flawed Philosophy of the Federal Reserve

The central argument presented is that the fundamental problem lies not with Powell’s actions, but with the Federal Reserve’s deeply ingrained belief that “prosperity causes inflation.” Forbes asserts this creates an “institutional bias against strong economic growth.” He criticizes the Fed’s economists for ignoring the true definition of monetary inflation – the reduction in the value of a currency, specifically the dollar.

He states, “The Federal Reserve believes prosperity causes inflation. It has an institutional bias against strong economic growth. Its officials and staff economists ignore the definition of monetary inflation, which is reducing the value of a currency, in this case the dollar.”

Indicators of Monetary Trouble & Historical Context

Forbes points to several indicators suggesting potential monetary troubles. He emphasizes the historical reliability of gold as a barometer, noting the recent surge in the dollar price of the yellow metal. He also observes rising prices in commodities, excluding oil, as another warning sign. He contrasts this with the historical US policy from the 1790s to the 1970s, which prioritized a stable dollar value. The shift away from the gold standard in the 1970s, according to Forbes, marked a turning point.

Achieving a Stable Dollar & The Call for Change

Forbes advocates for a return to prioritizing a stable dollar value as the Federal Reserve’s primary objective. He argues this can be achieved not through deliberately suppressing economic growth, but by ensuring the money supply aligns with the needs of the marketplace. He concludes by urging the Justice Department to drop the prosecution of Powell and refocus attention on the “false philosophy about inflation” that underpins the Federal Reserve’s operations.

He states, “The conclusion is clear. The Justice Department should drop its missgotten prosecution of Powell and let the focus be on the real problem with the Federal Reserve, its false philosophy about inflation.”

Case Study: California High-Speed Rail

The California high-speed rail project is presented as an example of the “routine” cost overruns and mismanagement common in Washington DC and political undertakings. Forbes notes the project’s costs are “tens of billions of dollars over original estimates” and that the proposed route has been significantly shortened, eliminating stations in Los Angeles and San Francisco. This serves as an illustration of the inefficiencies and lack of accountability prevalent in large-scale government projects.