The Fed's $6.5 Trillion Balance Sheet Trilemma

Chicago Fed President Austan Goolsbee delivered a stark warning on Thursday, stating that any attempt to weaken the Federal Reserve's independence could unleash a new wave of inflation.

"Anything that's infringing or attacking the independence of the central bank is a mess," Goolsbee said. "You're going to get inflation come roaring back if you try to take away the independence of the central bank."

Goolsbee's comments come as Fed Chair Jerome Powell confirms he has been served a subpoena by the Justice Department. The investigation relates to a major renovation of the Federal Reserve's headquarters in Washington, D.C.

Political Pressure Intensifies on Fed Leadership

The Chicago Fed president supported Powell’s recent assertion that the investigation could be a pretext for Donald Trump to exert influence over interest rate policy.

Trump has consistently criticized Powell, using insults and publicly demanding lower rates. This pressure has continued even though the Fed has already cut its main interest rate three times since September 2025. Trump has nicknamed the Fed chair "Too Late," signaling his dissatisfaction with the pace of monetary easing.

While Powell's term as chair is set to end in May, he is eligible to remain a Fed governor until 2028.

The Global Precedent for Central Bank Independence

Goolsbee, who joined the Chicago Fed in December 2022, directly addressed the unusual nature of a government investigation into its own central bank. He argued that such actions are not characteristic of stable, advanced economies.

"I know that there have been countries that had criminal investigations of their central banks," he noted. "But those countries are Zimbabwe and Russia and Turkey and a bunch of places that you would not characterize as advanced economies."

The underlying principle is that when a central bank loses its political independence, its credibility erodes. Historically, a loss of central bank credibility is often followed by a rise in inflation as the public loses faith in the institution's commitment to price stability.

A Defense of Powell's Record

Goolsbee, who previously served as an advisor to Barack Obama and Joe Biden, emphasized that his political past is irrelevant to his current role. "Once you've become a sworn member of the Federal Reserve, you're out of the elections business," he stated.

He also offered a strong endorsement of Powell's performance, calling him a "first-ballot Hall of Famer" for successfully bringing down inflation without triggering a recession. Goolsbee's comments frame the current conflict not just as a political dispute, but as a fundamental threat to the economic stability Powell has worked to achieve.

International Monetary Fund (IMF) chief Kristalina Georgieva has publicly defended the principle of central bank independence and offered her support for Federal Reserve Chair Jerome Powell, who is currently facing an investigation by the Trump administration.

Figure 1: IMF Managing Director Kristalina Georgieva has voiced strong support for the Federal Reserve's independence amid political pressure.

In a Thursday interview with Reuters, Georgieva stressed that substantial evidence shows independent central banks serve the best interests of both businesses and households. She argued that evidence-based, data-driven decision-making is fundamentally good for the economy.

Voicing her personal respect for the Fed Chair, the IMF managing director stated, "I have worked with Jay Powell. He is a very good professional, a very decent man, and I think that his standing among his colleagues tells the story." Her comments align with a letter of support for Powell signed by her predecessor, European Central Bank head Christine Lagarde, and other major central bank leaders.

The Investigation into the Fed Chair

The show of support comes after Powell revealed on Sunday that the Trump administration has launched an investigation into him. The probe focuses on cost overruns related to a $2.5 billion project to renovate two historic buildings at the Fed's Washington headquarters.

Powell has denied any wrongdoing, describing the administration's actions as a pretext to pressure him for not yielding to President Trump's repeated demands for significantly lower interest rates.

This unprecedented move against a sitting Fed Chair has triggered widespread criticism from several key Republican senators, foreign economic officials, investors, and former U.S. government officials from both political parties.

Trump's Stance on Fed Independence

President Trump has frequently criticized Powell's leadership at the Federal Reserve, often launching personal attacks over the pace of interest rate cuts.

On Wednesday, Trump dismissed concerns that eroding the central bank's independence could weaken the U.S. dollar and fuel inflation. When asked about these risks by Reuters, he replied, "I don't care."

The pressure extends beyond Powell. Trump has also sought to fire another Fed official, Governor Lisa Cook, who is challenging her termination in a legal case scheduled to be heard by the Supreme Court next week.

Global Implications for Monetary Stability

Georgieva noted that the IMF closely monitors issues like monetary and financial stability, as well as the institutional strength of member countries. The Federal Reserve receives special attention given the U.S. dollar's crucial role as a global reserve currency.

"It would be very good to see that there is a recognition ... that the Fed is precious for the Americans," she said. "It is very important for the rest of the world."

The International Monetary Fund (IMF) is preparing to seek board approval for a new $8.1 billion lending program for Ukraine within weeks, according to Managing Director Kristalina Georgieva. The announcement signals a major step in securing critical funding for the war-torn country's economy.

Speaking after high-level meetings in Kyiv with Ukrainian President Volodymyr Zelenskiy and other senior officials, Georgieva emphasized that while the fund is adapting to Ukraine's evolving situation, the core requirements of the program remain firm.

IMF Managing Director Kristalina Georgieva discussed the terms of a new lending program during a visit to Kyiv.

"I'm here to see how the country is doing in these unusually harsh times, because I want to make sure that what was agreed in November is implementable as it was agreed," she said. "We recognize that the direction to travel remains the same (but) the way we take these steps, we have to calibrate carefully."

The Key Condition: Ending VAT Exemptions

A central condition for the new program is Ukraine's commitment to press forward with removing a value-added tax (VAT) exemption for consumer goods, a policy that has faced domestic resistance. Georgieva described the reform as a "must-have" requirement.

However, the IMF is showing some flexibility on the timeline. Before the new program can be approved, the fund will only require that the measure is introduced in parliament, not that it has already been passed into law.

"On the VAT exemptions, we made it very clear that this has to happen," Georgieva stated. "We cannot possibly have the Ukrainian economy lingering between market economy and non-market economy."

A Non-Negotiable Step Toward a Market Economy

The IMF chief stressed to Ukrainian officials that the VAT reform is non-negotiable and essential for the country's long-term economic health and strategic goals.

"I was very clear. You know, this, you cannot touch it," Georgieva explained. "You need it for you. You need it for EU accession. You need it to attract the private sector to make the business environment more conducive."

The fund plans to assess which required measures can be implemented quickly and which need to be "calibrated" more carefully given the circumstances. In a sign of this calibrated approach, the IMF is discussing a one-year timeframe for Ukraine to build the necessary parliamentary support to pass the controversial tax law.

Source: Yahoo finance

Trump administration officials have declared a clear policy goal: keeping the nation's coal-fired power plants fully operational to meet rising electricity demand and fuel an industrial revival.

"The goal is 100% open," stated Interior Secretary Doug Burgum. "That's the standard we're operating against."

This directive was announced during the first meeting of the National Coal Council, an advisory panel revived by President Donald Trump after being left inactive under Joe Biden. The move is a cornerstone of Trump's second-term energy strategy, which seeks to reverse the long-term decline of the coal industry.

While the administration projects a bullish future for coal, many analysts remain skeptical, pointing to the persistent economic advantages of natural gas and renewable energy. This policy push also comes as the administration confronts rising electricity prices, a critical issue for voters ahead of the November elections.

A Multi-Front Strategy to Boost Coal

The administration is moving aggressively to support coal through a series of regulatory and executive actions. These efforts include:

• Rolling back regulations and subsidies that previously favored emissions-free renewable power.

• Issuing emergency orders through the Energy Department to force certain coal plants to continue operating.

• Blocking state-level closures, as seen when the Environmental Protection Agency rejected a proposal from Colorado to shut down a coal plant.

• Expanding access to resources by opening more federal land for coal leasing in North Dakota, Montana, and Wyoming.

Energy Secretary Chris Wright noted the immediate impact of these policies. "Seventeen gigawatts of coal generation are open today that would not have been open," he said, crediting the emergency orders. "You will not see those coal plants close during this administration."

Wright added that utilities are now proactively contacting the Energy Department to keep their plants online, even as some states advocate for their closure. Burgum, who leads the National Energy Dominance Council, went a step further, predicting the construction of new coal plants—a possibility most industry analysts have dismissed.

Market Realities vs. Policy Ambitions

The renewed National Coal Council, which met to discuss strategies for maintaining and expanding the US coal fleet, is packed with industry heavyweights. The panel of roughly 60 members includes executives from top producers like Peabody Energy, Warrior Met Coal Inc., Hallador Energy Co., and Nacco Industries Inc. Other members include utility FirstEnergy Corp., railroad Norfolk Southern Corp., and Trump donor Joe Craft, CEO of Alliance Resource Partners. The group is chaired by Peabody Energy CEO Jim Grech and vice-chaired by Jimmy Brock, CEO of Core Natural Resources Inc.

Despite this unified industry front, coal faces steep market challenges. Once the source of over half the country's electricity, coal's share fell to approximately 17% in 2025 and is forecast to drop to 15% this year as utilities favor cheaper natural gas and renewables.

However, a recent surge in US electricity demand has given coal producers a temporary boost. Utilities have delayed some plant retirements, and federal orders have kept others running. This, combined with higher gas prices, led to a 13% increase in electric generation from coal last year. Government forecasts, however, predict the downward trend will resume in 2026.

Linking Coal to National Security and the Economy

Administration officials are framing the pro-coal policy as essential to broader national goals. During the council meeting, executives warned against over-reliance on natural gas and stressed the need to protect American mines and control electricity prices.

Wright connected a healthy coal sector to a thriving manufacturing base. Burgum linked it directly to the strategic competition with China over artificial intelligence, arguing that reliable power is critical to winning the AI race.

A New Battleground: The Fight Over ESG Investing

The effort to support coal has also extended to the financial sector. Wright warned that a court-ordered divestment of coal assets by the world's largest asset managers could severely undermine the industry.

This concern stems from a lawsuit led by Texas Attorney General Ken Paxton against BlackRock Inc., Vanguard Group Inc., and the asset management division of State Street Corp. The suit alleges that the firms violated antitrust laws by colluding through environmental, social, and governance (ESG) initiatives to suppress coal production.

Fossil fuel advocates have long criticized ESG principles for steering capital away from oil, gas, and coal. Former Trump Energy Secretary and Texas Governor Rick Perry estimated that a successful lawsuit could force the firms to sell off $18 billion in coal holdings. He warned such an outcome would pose "a direct threat to coal companies' ability to raise capital, finance infrastructure and support jobs."

Source: Reuters