Good morning. Andrew here. There are certain moments that deserve extra reflection. Today is one of them. The criminal investigation into Jay Powell, the Fed chair, ostensibly over his testimony about building renovations appears to be yet another politically motivated attack by the Trump administration. In a nation whose success is largely tied to a belief in the rule of law, the perception that the administration is using “lawfare” to undermine the Fed’s independence is a striking example of how norms are being shattered — and how business executives have remained conspicuously silent. More details below. (Was this newsletter forwarded to you? Sign up here.)
Powell fights backMarkets are on edge after the Trump administration made its most direct attack yet on Jay Powell, the Fed chair — and seemingly at the political independence of the central bank. For now, the battle seems unlikely to produce the drastically lower interest rates that President Trump has long demanded. It also may cast more of a pall over whoever replaces Powell, and perhaps further erode investors’ belief in the Fed’s stability. The latest: U.S. stock futures are slightly lower this morning, after news outlets reported that Powell faces a federal criminal investigation, ostensibly related to the renovation of the Fed headquarters. But the dollar was down, while the prices of gold and silver, classic safe-haven assets, climbed to new records. The yields of various U.S. Treasury bonds, which rise when their prices go down, were up. Powell’s response, from a statement the Fed issued last night (along with a rare video message from the chair): This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation. Trump has already taken aim at a Fed governor, Lisa Cook, whose efforts to resist being fired by Trump are expected to be heard by the Supreme Court next week. Trump claimed that he had no advance knowledge of the Justice Department’s case. He told NBC News, “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings.” On claims that the case was meant to pressure Powell into lowering interest rates, Trump added: “I wouldn’t even think of doing it that way. What should pressure him is the fact that rates are far too high.” (That said, Trump said late last month that he might sue Powell for “gross incompetence.”) Among those behind the case are Jeanine Pirro, who runs the U.S. attorney’s office for the District of Columbia, according to The Times, and Bill Pulte, the top housing official in the administration who also pushed for the Cook investigation, according to Bloomberg. The move came as something of a surprise, as Trump had appeared to back off threats to Powell after he visited the Fed construction site over the summer, suggesting that he wouldn’t seek to fire the central bank chief and wanted the renovations to proceed. “We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” Krishna Guha, a vice chairman at Evercore ISI, wrote to clients. And it may backfire, critics warn:
Oil prices waver as President Trump suggests he may intervene in Iran. President Trump said he was reviewing military options after the death toll from a government crackdown on protesters rose sharply, spurring concerns that Tehran could retaliate against global oil shipments. Trump also weighed in on Venezuela, saying that he was “inclined” to keep Exxon Mobil from drilling there after its C.E.O. called the country “uninvestable.” Countries block access to Grok over A.I.-generated sexualized images of real people. Malaysia and Indonesia barred xAI’s chatbot after global outrage over a tool that let users digitally undress women, often without their consent, or children. (On Friday, Grok began limiting access to the feature.) Separately, Google has pulled A.I. overviews for some medical queries after reports of “dangerous” mistakes in them. Warner Bros. Discovery wins big at the Golden Globes. The media giant scored nine wins at the awards last night, the most of any company, including for the movies “One Battle After Another” and “Sinners” and the TV show “The Pitt.” The victories underscored the stakes of the takeover battle for Warner Bros. Discovery, with both of its suitors, Netflix and Paramount, catching strays during the night. (A must-read for today: New York magazine’s lengthy look at David Ellison, Paramount’s C.E.O., and his father, the billionaire Larry Ellison.) Trump vs. the credit card industryThe investigation into Jay Powell, the Fed chair, isn’t the only financial regulation move by the Trump administration to rattle markets this morning. President Trump’s call for capping credit card interest rates at 10 percent for one year has sent banking stocks plunging. And it has another industry that had expected sunnier times in a second Trump term to instead question what other chaos it may confront. The latest: The stocks of big credit card issuers fell sharply in premarket trading today. Shares in Capital One were down nearly 9 percent, while those in JPMorgan Chase and Citigroup were down about 3 percent. What Trump is demanding: On Friday, Trump wrote on social media that his administration would no longer let Americans be “ripped off” by credit card companies that charge interest rates of 20 percent or more. Trump didn’t detail how he planned to enact the policy, which would typically require congressional or regulatory action. But he told reporters yesterday that lenders who didn’t comply by the Jan. 20 deadline would be “in violation of the law.” It’s the latest sign of Trump’s focus on affordability. It’s a political issue that threatens Republicans’ electoral prospects in the midterm elections this fall as Americans worry about costs and disapprove of his handling of the economy. A 10 percent cap would save Americans about $100 billion in interest payments annually, according to a recent study from the Vanderbilt Policy Accelerator. The call for a cap aligns Trump with progressive lawmakers like Senator Bernie Sanders, independent of Vermont. Sanders, who (with Senator Josh Hawley, Republican of Missouri) released a plan in February that would cap interest rates at 10 percent for five years chided Trump about card rates on social media hours before the president released his call for a cap. Wall Street is pushing back. Five industry groups argued that a 10 percent cap would “reduce credit availability” for millions of Americans and “drive consumers toward less regulated, more costly alternatives.” (Bill Ackman, the hedge fund billionaire, called the cap a “mistake” on social media in a post that was later deleted.) Profits from high interest rates drove banks to offer cards to people with poor credit, and allowed them to subsidize points and reward programs for those with good credit. The cap would most likely lead to a $27 billion cut in rewards for customers with lower credit scores, according to the Vanderbilt Policy Accelerator study. Big consumer lenders including JPMorgan, Bank of America and Citigroup report quarterly earnings this week, putting their C.E.O.s on the hot seat with analysts. The move will also make the World Economic Forum in Davos, Switzerland, next week more interesting: Both Trump and many banking C.E.O.s will be in attendance. Exclusive: a16z and Booz Allen team up on defense techPresident Trump unexpectedly cracked down on the defense industry last week, criticizing the industry and signing an executive order barring stock buybacks and dividend payouts at military contracts deemed “underperforming.” But later that day, Trump sent defense stocks soaring when he proposed increasing the U.S. defense budget to $1.5 trillion in 2027, from $1 trillion. That quickly restored confidence in the sector, which has been surging since the passage of the broad domestic policy legislation last year. Now one of the country’s largest venture firms, Andreessen Horowitz, is partnering with one of the biggest U.S. national security federal contractors, Booz Allen, to capitalize on the continued growth in military spending, Lauren Hirsch is first to report. Under the agreement, Booz Allen will help companies backed by a16z, as the venture firm is commonly known, to bring their technologies to the U.S. government. “Working with governments is just very, very different than working with regular enterprise customers,” Ben Horowitz, a founder of a16z, told DealBook. “And Booz Allen has got a lot of experience in that.” Venture investors have been pouring money into defense and aerospace technology, investing more than $1.5 billion in the industry by March of last year, according to PitchBook data. As part of the roughly $150 billion allocated to defense and national security in the domestic policy legislation last year, the government allocated $16 billion to new weapon technologies and $25 billion to building a golden dome missile-defense system in the U.S. “They’re trying to buy commercial technology and venture-backed technology and innovative tech much faster,” Horacio Rozanski, the C.E.O. of Booz Allen, told DealBook. The partnership with Booz Allen comes after a16z said it had raised $15 billion in new capital to invest in a range of areas. That includes more than $1 billion each for funds focused on “American Dynamism” and infrastructure. The firm has backed companies like Anduril, which designs autonomous systems and weapons for government agencies and the military. The two firms have been working together for years. Booz Allen’s work with the software company Databricks, a gem in a16z’s portfolio, is an example of the kind of deals expected from the new partnership. Booz Allen helped deploy Databricks at federal agencies in 2018, and has since helped scale those efforts. Booz Allen and a16z will meet weekly to discuss new business opportunities, Rozanski said. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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