Federal prosecutors investigate Fed and Jerome Powell
Federal prosecutors have initiated a criminal investigation into Federal Reserve Chair Jerome Powell concerning his June testimony before Congress regarding the central bank’s $2.5 billion renovation of its headquarters in Washington, DC. The remarkable action taken against the independent Federal Reserve was accompanied by an equally remarkable statement from Powell in a video released Sunday night. In it, he asserted that the investigation stemmed directly from his ongoing conflict with the administration regarding interest rates. Powell stated that it was a result of wider “threats and ongoing pressure” from the administration. “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 stated late Sunday. The investigation conveys a stark warning to Powell – and to anyone who may assume leadership of the Fed in the future. President Donald Trump’s relentless criticism of the Fed chair, whom he has stated he will not renominate, has significantly undermined the Fed’s longstanding political independence. Trump has even stated that he should have a role in rate decisions. However, the criminal investigation elevates Trump’s confrontation with the Federal Reserve to an entirely different dimension. It indicates that whoever Trump chooses to succeed Powell at the end of his term in May will encounter ongoing pressure from the administration to reduce interest rates. Investors and economists worldwide hold the Fed’s independence in high regard. It ensures that policymakers will consider the long-term consequences of establishing monetary policy – rather than succumbing to short-term political impulses – when guiding the economy.
On Sunday, Powell made a direct connection between the investigation and the issue of the Fed’s independence, emphasizing its capacity to determine interest rates free from political influence. “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.” Chad Gilmartin refrained from commenting on the investigation but stated that the attorney general aims to “prioritize investigating any abuse of tax payer dollars.” During a Sunday interview, Trump expressed his lack of awareness regarding the investigation, stating, “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 and his allies have consistently criticized Powell over the past year for failing to reduce interest rates to the president’s preference. The Fed in the second half of last year lowered rates three times in a row; however, officials have recently indicated that they are unlikely to lower rates again for some time.
Trump’s pressure campaign has featured a series of personal insults directed at Powell, escalating into threats to dismiss the Fed chair. However, Powell has asserted that Trump lacks the authority to dismiss him. Later in the year, Trump focused his attention on Fed Governor Lisa Cook, who was appointed by then-President Joe Biden. The president and his allies have leveled accusations against Cook, alleging mortgage fraud. Trump referenced the allegations as the reason for her termination in August, despite the fact that Cook has not faced any criminal charges. The Supreme Court is set to hear oral arguments later this month regarding Trump’s authority to terminate Cook. The renovation of the Fed has sparked continuous debate. Powell testified before Congress in June, stating that the renovation was a collaboration with various agencies and that costs had evolved over time. Trump has issued a threat to sue Powell regarding the renovation. Last month, the president stated he was contemplating “a suit against Powell for incompetence.” Allies of Trump, including Federal Housing Finance Agency Director Bill Pulte and Office of Management and Budget Director Russ Vought, have asserted that the project was poorly managed. However, the Fed asserts that the enhancements to its long-standing buildings were essential, including the removal of asbestos and the modernization of electrical and ventilation systems. The tension became evident in July, when Trump accompanied Powell on a tour of the project. Powell addressed Trump in front of reporters regarding the project’s cost, with the tension between the two men evident. The federal investigation arises as Trump readies to reveal his selection for Powell’s successor following the conclusion of his term in May. The decision will conclude a months-long search for what is arguably the most influential role in the global economy. Trump has suggested that the next Fed chair could be National Economic Council Director Kevin Hassett. However, he has also recently conducted interviews with Kevin Warsh, a former Fed governor, and is anticipated to interview Rick Rieder.
Trump has stated he will announce his pick “early” this year. Following the public revelation of the federal investigation late Sunday, Republican Senator Thom Tillis of North Carolina stated in a post on X that he will “oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.” Tillis has decided against pursuing re-election. Democratic Sen. Elizabeth Warren of Massachusetts reiterated that sentiment in a statement on Sunday: “The Senate should not move forward with any Trump nominee for the Fed, including Fed Chair.” Senate Minority Leader Chuck Schumer, a Democrat from New York, expressed his disapproval of the action, stating: “Trump’s assault on the Fed’s independence continues, threatening the strength and stability of our economy. This is the kind of bullying that we’ve all come to expect from Donald Trump and his cronies. Anyone who is independent and doesn’t just fall in line behind Trump gets investigated,” Schumer said in a statement. Investors and analysts expressed concerns regarding the investigation and its potential implications for the world’s largest economy. “We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” wrote Krishna Guha in a note. “At the time of writing we are still looking to get more information and context, but on the face of it, it appears that the administration and the central bank are now in open conflict…”
