The United States Department of Justice has opened a criminal probe into Federal Reserve chair Jerome Powell as U.S. President Donald Trump’s administration escalates its attacks on the Fed’s independence.
The probe follows repeated threats from Trump to fire Powell for declining to aggressively cut interest rates. Trump denied knowledge of the investigation today, saying: “I don’t know anything about it, but he’s certainly not very good at the Fed.”
“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,” said Powell in a video statement.
“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.”
The investigation is examining whether Powell lied to Congress during testimony about the renovation of the Fed’s headquarters last June, Powell said. The Fed was served with grand jury subpoenas on Friday.
Trump has favoured very low interest rates, telling the Wall Street Journal last month that rates should be cut to 1% or less within one year. He also said at the time that he would want the next Fed chair to consult with him on interest rate decisions, after Powell’s term ends in May.
Former Federal Reserve chairs Alan Greenspan, Janet Yellen, and Ben Bernanke and other officials including former Treasury Secretaries condemned the probe in a joint statement.
“The Federal Reserve’s independence and the public’s perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates,” they wrote. “The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence.”
Trump attempted to fire Fed governor Lisa Cook last year in an unrelated incident, citing unverified allegations of mortgage fraud. Cook’s lawyers have said Trump does not have the authority to do so, and the Supreme Court will hear arguments in her case against Trump next week.
Gold prices surged to a record high above $4,600 per ounce during Monday trading (Tuesday AEDT), with gold often used as a hedge against threats to the Fed’s independence.
The U.S. dollar index also dropped 0.4% on Monday, falling from its one-month high. Wall Street continued to reach fresh records despite the news, however, with inflation data for December due tomorrow.
Traders currently forecast a 96% probability that the Fed will leave rates unchanged at its next meeting on 27-28 January, per CME FedWatch.
