Trump team escalates attack on Fed's Powell with criminal indictment threat
A criminal probe into Federal Reserve Chair Jerome Powell has intensified tensions between the White House and the central bank, fuelling fears of political interference and renewed concerns over the Fed’s independence.
Highlight:
- Powell accuses Trump administration of using legal threats to influence Fed policy
- Subpoenas mark escalation in Trump-Powell conflict over interest rates
- Republican Senators Tillis, Murkowski, Cramer condemn probe
- Former Fed chairs call it an attempt to undermine Fed independence
The Trump administration's move to open a criminal investigation into Federal Reserve Chair Jerome Powell escalates the president's long-running pressure campaign against the central bank, drawing fire from the Fed chief 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, ostensibly focused on comments Powell made to Congress about a building renovation project, also sent rates on longer-term US Treasury bonds up, as investors parsed what a less independent Fed could mean for inflation and monetary policy.
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Such a market reaction could, if amplified, constrain Trump's efforts to reshape the Fed, considered the most influential central bank in the world and a cornerstone of the world financial system. It could also backfire against Trump's efforts to address broad concerns about "affordability" if long-term borrowing costs rise further.
The independence of central banks, at least in setting rates in order to control inflation, is considered a central tenet of robust economic policy, insulating monetary policymakers from short-term political considerations and allowing them to focus on longer-term efforts to keep prices relatively stable.
On Monday, former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan joined with former federal government economic policy leaders from both political parties in raising the alarm.
"This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly," they wrote. "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."
US Republican Senator Thom Tillis, a member of the Senate Banking Committee that vets presidential nominees for the Fed, called the move a "huge mistake" on Sunday and said he would oppose any Trump nominees to the Fed, including whoever is named to succeed Powell as central bank chief, "until this legal matter is fully resolved."
He was joined on Monday in condemning the development by fellow Banking Committee member Kevin Cramer and Senator Lisa Murkowski, who wrote on X that "the stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer."
"Obviously there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns," Jan Hatzius, chief economist at Goldman Sachs, said at the investment bank's annual global strategy conference in London.
Gold hit a record high and the dollar fell. Major US stock indexes opened lower, with bank stocks under pressure over a Trump proposal to cap interest rates on credit cards.
Powell – who was nominated by Trump to lead the Fed in late 2017 and confirmed by the Senate to the position in early 2018 – will complete his term as Fed chief in May, but he is not obligated to leave its Washington-based Board of Governors until 2028, and a number of analysts saw the latest move by the administration as adding to the chances that he will defiantly remain at the central bank.
The criminal indictment threat emerged about two weeks before Trump's effort to fire another Fed official, Governor Lisa Cook, will be argued before the Supreme Court.
Until now Powell had avoided public disagreement with the Trump administration, Republican lawmakers had been largely silent and investors had been warily watching as the sparring match between the White House and the Fed played out during Trump's second term.
Powell's pointed response and signs of congressional pushback appear to open a new and more highly charged chapter in that row.
'Threats and ongoing pressure'
Trump officials' latest salvo was revealed late on Sunday by Powell, who said the Fed had received subpoenas from the US Justice Department last week pertaining to remarks he made to Congress last summer over cost overruns for a $2.5 billion building renovation project at the Fed's headquarters complex in Washington.
"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 Committee 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 more broadly for greater say over the Fed, he said.
"This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress' oversight role ... 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 Sunday that he had no knowledge of the Justice Department's actions. "I don't know anything about it, but he's certainly not very good at the Fed, and he's not very good at building buildings," Trump said.
A Justice Department spokesperson declined to comment on the case but added: "The Attorney General has instructed her US Attorneys to prioritise investigating any abuse of taxpayer dollars."
