Power Struggle at the Fed - Housing Chief Accuses Powell of Fraud, Threatens Central Bank Independence

Power Struggle at the Fed: Housing Chief Accuses Powell of Fraud, Threatens Central Bank Independence

Trump Ally Demands Congressional Investigation in Unprecedented Attack on Fed Chairman

In an extraordinary escalation of tensions between the Trump administration and the Federal Reserve, William J. Pulte, the recently confirmed director of the Federal Housing Finance Agency , has formally called on Congress to investigate Fed Chairman Jerome Powell for alleged deception and political bias, threatening the cherished independence of America's central bank.

The confrontation, which erupted publicly on July 1 when Pulte issued a scathing letter to Capitol Hill, centers on Powell's testimony about a controversial $2.5 billion renovation of the Fed's headquarters and his refusal to cut interest rates despite mounting political pressure from President Trump.

"I am asking Congress to investigate Chairman Jerome Powell, his political bias, and his deceptive Senate testimony, which is enough to be removed 'for cause,'" Pulte wrote in his official capacity as both FHFA Director and Chairman of Fannie Mae and Freddie Mac. "Jerome Powell's $2.5B Building Renovation Scandal stinks to high heaven, and he lied when asked about the specifics before Congress."

The Marble and Gold Battleground

The renovation dispute might seem trivial against the backdrop of monetary policy decisions affecting trillions in global assets, but it has become the flash point in a deeper power struggle. Powell previously testified to Congress that "There's no VIP dining room, there's no new marble. There are no special elevators. There are no new water features, there's no beehives, and there's no roof terrace gardens."

But planning documents for the Fed's Eccles building obtained by congressional staff tell a different story. They indicate that "private dining rooms on Level 4 will be restored" and "the Governors' private elevator will be extended to discharge at the dining suite level."

Senator Cynthia Lummis, who Pulte cited in his letter, has claimed Powell made "factually inaccurate statements" regarding these amenities, characterizing his approach as a "don't bother me attitude."

While architectural experts note the renovations are far from the "Palace of Versailles" as characterized by critics, the perceived discrepancies have provided ammunition for those seeking to undermine Powell's credibility.

Housing Market Caught in the Crossfire

Behind the public spectacle lies a substantive policy dispute with enormous implications for American homeowners and the broader economy. Pulte, whose family wealth stems from the homebuilding industry, has repeatedly criticized Powell for maintaining high interest rates that he claims are "crushing" the housing market.

"Jerome Powell is a main reason for the Housing Supply Crisis in this Country," Pulte stated in a separate communication last month. "By improperly keeping interest rates high, he is trapping homeowners in low-rate mortgages and choking off existing home sales—directly fueling the housing supply crisis."

With mortgage rates hovering near 7%, many homeowners who secured rates below 3% during the pandemic are reluctant to sell and take on new, more expensive loans. This "lock-in effect" has contributed to record low inventory of existing homes, driving prices higher despite affordability challenges.

Constitutional Crisis Brewing

The implications of Pulte's accusations extend far beyond real estate markets. Legal experts note that while Congress can investigate Powell, only the president can remove a Fed governor, and only "for cause" under the Federal Reserve Act—a term undefined in statute and untested in courts for the Federal Reserve.

"This represents an unprecedented assault on central bank independence," explained a former Fed governor who requested anonymity. "The markets have long understood that the Fed's credibility depends on its ability to make unpopular decisions without political interference. If that firewall fails, we enter uncharted territory."

A Supreme Court case currently under consideration could further complicate matters by potentially expanding presidential removal powers for independent agency heads. Should the Court weaken "for-cause" protections, Powell's position could become more vulnerable.

Wall Street Handicaps the Power Play

Financial markets have thus far remained relatively stable despite the institutional drama, with most analysts assigning low probability to Powell's actual removal. However, traders are increasingly pricing in scenarios where political pressure forces the Fed to signal a more dovish stance.

"The market sees three potential paths forward," noted a chief investment strategist at a major Wall Street firm. "Most likely, Powell survives and cuts rates on his own timetable based on data. Less likely but plausible, he bends to pressure while remaining in office, pulling rate cuts forward. The tail risk—a true constitutional showdown resulting in Powell's departure—would trigger significant volatility."

Bond traders have begun positioning for these possibilities, with some establishing positions that would benefit from either data-driven cuts or politically accelerated ones. Options markets show increased demand for instruments that would profit from sudden spikes in volatility.

Investment Terrain Shifts Under Political Tremors

For investors navigating this landscape, the conflict introduces new dimensions of risk and opportunity.

Some portfolio managers are increasing exposure to mortgage-backed securities, anticipating that any hints of earlier rate cuts would accelerate refinancing activity and tighten mortgage spreads. Others are establishing defensive positions in gold and certain currencies that might benefit if the Fed's independence is compromised.

"Central bank credibility isn't something markets price continuously—it tends to matter all at once," explained a veteran fixed-income portfolio manager. "Even a relatively small probability of a true Fed independence crisis can dominate investment returns when it materializes."

Homebuilder stocks and real estate investment trusts have seen increased attention from investors attempting to position for potentially lower mortgage rates, though analysts caution that political interference in monetary policy could create longer-term instability that ultimately harms these sectors.

The Path Forward: High-Stakes Chess

As Washington and Wall Street watch this unprecedented conflict unfold, few expect quick resolution. Powell's term runs until 2026, and his removal would face steep legal and practical hurdles. Yet the pressure campaign shows no signs of abating.

For now, financial markets remain in a precarious equilibrium, recognizing the threats to Fed independence while betting on institutional resilience. But participants are increasingly hedging against tail risks that once seemed implausible.

"Central bank independence tends to matter all at once," one strategist observed. "Even a small probability of a true institutional breakdown warrants protection in portfolios. This isn't just another political spat—it's a fundamental question about how monetary policy will function in an increasingly polarized America."

Whether Powell weathers this storm or becomes the first Fed chair removed "for cause," the current confrontation has already rewritten the relationship between politics and monetary policy in ways that will reverberate through markets for years to come.