Washington (United States) (AFP) – US prosecutors have opened an inquiry threatening a “criminal indictment” against the Federal Reserve, its chairman Jerome Powell revealed, denouncing new “threats and ongoing pressure” from the administration of President Donald Trump. Powell said in a rare video statement on Sunday that the US central bank received grand jury subpoenas on Friday related to his Senate testimony in June, which concerned in part a major renovation project of Federal Reserve office buildings. He dismissed the subpoenas as “pretexts” after months of bitter conflict with Trump, who has publicly excoriated the Fed for not cutting interest rates aggressively to bolster economic growth.
“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,” Powell said. “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,” he explained. The Fed, which makes independent monetary policy decisions, has a dual mandate to keep prices stable and unemployment low. Its main tool in doing so is by setting a benchmark interest rate that influences the price of US Treasury bonds and the cost of borrowing across the economy. The Fed’s independence from political influence is considered vital for investors, who worry that outside meddling in monetary policy could threaten a bedrock of the global economy.
“If the Fed acts on politics rather than data, foreign investors could pull back on financing the US debt and seek new safe havens,” said Atakan Bakiskan, a US economist at the German investment bank Berenberg.
Federal Reserve board members typically serve under both Republican and Democratic presidents, and Powell was nominated Fed chairman by Trump during his first term. However, since his re-election last year, Trump has relentlessly pressured Powell to move faster in lowering interest rates, breaching the long-standing independence of the institution. Trump said Sunday that he had no knowledge of the Justice Department’s investigation into the Federal Reserve. “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,” NBC quoted Trump as saying.
Despite this, investors reacted warily as financial markets opened on Monday, with the dollar falling against major currencies alongside the 10-year US Treasury bond, while safe-haven assets like gold surged. “The combined drop in the dollar, equities, and Treasuries was a reminiscence of the ‘sell America’ days of last spring,” when Trump unleashed his global tariffs blitz, said Francesco Pesole, a strategist at ING in London. “The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial.”
Senators from both sides of the aisle blasted the investigation. “It is now the independence and credibility of the Department of Justice that are in question,” Republican Thom Tillis asserted. “I will oppose the confirmation of any nominee for the Fed — including the upcoming Fed Chair vacancy — until this legal matter is fully resolved,” he added. Senate Minority Leader Chuck Schumer, a Democrat, called the probe an assault on the Fed’s independence, stating, “Anyone who is independent and doesn’t just fall in line behind Trump gets investigated.”
Powell’s term as chairman of the Federal Reserve ends in May, and Trump told Politico in an interview last month that he would judge Powell’s successor on whether they immediately cut rates. Trump has also spoken openly about ousting Powell but has stopped short of doing so, instead focusing on cost overruns for renovations of the Fed’s Washington headquarters. In July, the cost of the Fed’s facelift of its 88-year-old Washington headquarters and a neighboring building was up by $600 million from an initial $1.9-billion estimate. That same month, Trump made an unusual visit to the construction site where the two men, clad in hard hats, bickered over the price tag for the makeover.
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