When the president threatens to jail the head of the Federal Reserve, you know things have gotten weird. And according to economist Justin Wolfers, they've gotten dangerously weird.
Welcome to Uncharted Territory
Wolfers didn't mince words when discussing the Justice Department's threat of criminal indictment against Federal Reserve Chair Jerome Powell over the central bank's multi-billion-dollar headquarters renovation project. Speaking on MS Now Tuesday, he called the situation "unprecedented" and pointed out the obvious: we're talking about the president threatening the Fed chair with jail time.
This has never happened before in American history, Wolfers noted. A Fed chair threatened with prison for upsetting the president? That's not the American playbook. But it is familiar territory for countries like Argentina, Russia, Turkey, Venezuela, and Zimbabwe.
"This is the stuff of tin-pot dictators," Wolfers said bluntly. And here's the scary part: this kind of political interference with central bank independence is exactly the sort of thing that precedes hyperinflation. It's "the sort of story that never ends well," he warned.
Markets Playing Wait-and-See
You might expect financial markets to be melting down right now, but they're not. The reaction has been cautious rather than dramatic, which Wolfers attributes to one simple fact: "No one knows if he's serious about this."
He calls it "the old Trump two-step." The pattern goes like this: Trump makes an explosive threat, markets try to figure out if he means it, and often he eventually backs down and walks away, pretending like "nothing happened at all." So investors are waiting to see which way this goes before hitting the panic button.
But even if Trump backs down, Wolfers argues there's still damage. In a post on X, he described this as a "volatility tax." The mere fact that such threats happen raises the "perceived risk of future interference" with the Fed, which creates uncertainty that markets hate.