The trump governance’s move to open a criminal examination into Federal Reserve Chair Jerome Powell escalates the US president’s long-running pressure campaign against the central bank. This action has drawn fire from Powell,who called the move a “pretext” to influence interest rates,and condemnation from former Fed chiefs and key members of Trump’s Republican Party.
The Justice Department’s threat of indictment, focused on comments Powell made to Congress about a building renovation project, also caused rates on longer-term US Treasury bonds to rise.Investors are assessing what a less independent fed could mean for inflation and monetary policy.
This market reaction could constrain Trump’s efforts to reshape the Fed, a cornerstone of the world financial system.It could also backfire on his efforts to address concerns about “affordability” if long-term borrowing costs increase.
Central bank independence, particularly in controlling inflation, is considered vital for robust economic policy.It shields monetary policymakers from short-term political pressure, allowing them to focus on long-term price stability.
On Monday, former Fed chairs Janet Yellen, ben Bernanke and Alan Greenspan, along with former economic policy leaders from both parties, raised the alarm.They warned that such actions are common in emerging markets with weak institutions,leading to negative consequences for inflation and economic function.
“It has no place in the United States whose greatest strength is the rule of law,which is at the foundation of our economic success,” they wrote.
US Republican Senator Thom Tillis called the move a “huge mistake” and said he would oppose any Trump nominees to the Fed, including a successor to Powell, “until this legal matter is fully resolved”. Senators Kevin Cramer and Lisa Murkowski echoed this sentiment, with Murkowski stating on X that the stability of markets and the economy would suffer if the Fed lost its independence.
Jan Hatzius, chief economist at goldman Sachs, noted that concerns about Fed independence were reinforced by the investigation. Gold hit a record high, and the dollar fell. US stock indexes opened lower, with bank stocks pressured by a Trump proposal to cap credit card interest rates.
powell,nominated by Trump in 2017,will finish his term in May but could remain on the Board of Governors until 2028. analysts believe the investigation increases the likelihood he will remain at the central bank.
The indictment threat surfaced shortly before a Supreme Court argument regarding Trump’s attempt to fire another fed official, governor Lisa Cook. Until now, Powell had avoided public disagreement with the administration, and investors had cautiously observed the ongoing dispute.
Powell’s response and the congressional pushback signal a new, more contentious phase in this conflict.
‘Threats and ongoing pressure’
Powell revealed on Sunday that the Justice Department had issued grand jury subpoenas last week regarding his remarks to Congress about cost overruns for a $2.5 billion renovation project at the Fed’s Washington headquarters.
“On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Commitee last June,” Powell said.
“I have deep respect for the rule of law and for accountability in our democracy. No one — certainly not the chair of the Federal Reserve — is above the law.”
“But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure” for lower interest rates and greater control over the Fed, he said. “This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. 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.”
Trump told NBC News he was unaware of the Justice Department’s actions, adding, “He’s certainly not very good at the Fed, and he’s not very good at building buildings.”
A Justice Department spokesperson declined to comment but stated the attorney general had instructed US Attorneys to prioritize investigating misuse of taxpayer funds.
