Fed, Doj Clash Over Powell Probe — As Government Says It Has No Evidence Of Misconduct

The Federal Reserve is formally opposing the Justice Department’s effort to reinstate its subpoenas to the central bank, amid revelations that the government itself acknowledged it has no evidence of wrongdoing by Chair Jerome Powell.

Court documents unsealed Thursday showed that central bank lawyers asserted that a federal judge's ruling earlier this month quashing the subpoenas was "clear and correct."

In a standoff with implications for the global economy, the DOJ is locked in a legal battle with the Fed over whether its probe into congressional testimony by Powell is appropriate, or simply an effort by the Trump administration to push for lower interest rates.

The case took an unusual turn with the release of the transcript of the initial hearing on the matter, in which the DOJ lawyer said, “We do not know at this time” whether there is evidence of misconduct at the central bank. “You don't need this grand suspicion of illegal activity,” he added. “It can be something as simple as a tip or a rumor or something that just doesn't seem right.”

The judge will soon rule on the department's request that he reconsider his decision to reject the subpoenas, which he said were a “mere pretext” to pressure the Fed.

"Reconsideration is warranted only where there has been 'an intervening change in controlling law,’ there is 'new evidence,’ or there is 'a need to correct clear error or prevent manifest injustice,’” the Fed's lawyers said in their court filing. “The Court’s opinion, however, is clear and correct.”

The government, in its own filing March 12, said Chief U.S. District Judge James Boasberg had “applied an incorrect legal standard, erred with respect to certain significant facts, and overlooked other relevant facts.” For example, DOJ said, the subpoenas were not explicitly targeting Powell and were instead directed to the Fed board.

If the judge upholds his decision to quash the subpoenas, the government can then appeal.

“How about the White House ballroom, should that be investigated?” Boasberg said at the hearing on March 3. “That’s over budget.”

“I wish we were in court for something like that, Your Honor, but today we are here on a different matter,” the prosecutor, George A. Massucco-LaTaif, responded.

The clash has created uncertainty about who will be in charge of the Fed after mid-May when Powell’s term as chair ends. President Donald Trump, who has leaned heavily on Powell for the last year to lower borrowing costs to boost the economy, has tapped Kevin Warsh as his replacement, but the nomination is stalled in the Senate until the DOJ probe is resolved.

Sen. Thom Tillis (R-N.C.) has expressed concern that the DOJ investigation is an attempt to threaten Powell and undermine the Fed’s political independence.

Powell said last week that he would serve as chair pro tem until his replacement is confirmed.