Jerome Powell denounces threat of prosecution over Fed policy
Federal Reserve Chairman Jerome Powell says the threat of criminal charges over Congressional testimony is a sham.
Federal prosecutors are investigating Federal Reserve Chairman Jerome Powell, the latest escalation in a years-long feud between President Donald Trump and the central bank leader he picked during his first term.
It’s a move that drew condemnation from the former Fed chair, Republicans on the Senate Banking Committee, and, perhaps most surprisingly, Mr. Powell himself. Powell had previously deflected questions about Trump’s insults, demands for lower interest rates and threats to fire him. Chairman Powell has previously said that the Fed’s independence is a “matter of law.”
Janet Yellen, Ben Bernanke and former Fed Chair Alan Greenspan said in a statement: “The reported criminal investigation against Fed Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine Fed Chairman Jay Powell’s independence.”
Late on Sunday, January 11, after The New York Times reported news of an investigation related to ongoing renovations at the Fed’s headquarters, Chairman Powell and the Fed confirmed the report by releasing a video statement calling the investigation a “pretext.”
“This is a question about whether the Fed can continue to set interest rates based on evidence and economic conditions, or whether monetary policy will instead be dictated by political pressure and intimidation,” Powell said.
President Trump has denied any involvement in the Justice Department’s investigation of the Federal Reserve, telling NBC News that the investigation had nothing to do with interest rates. The Times reported that an investigation is underway into whether Mr. Powell lied to Congress about the extent of the renovations to the Fed’s headquarters.
“While we do not expect this to change the near-term direction of monetary policy, it will make the job of the next Fed chair more difficult to build consensus among the 19 members of the Federal Open Market Committee,” Wells Fargo economists said in a Jan. 12 report on the federal survey.
The Interest Rate Setting Committee has voted to lower the target federal funds rate at its past three meetings. Currently, it is moving in the range of 3.5%-3.75%. Chairman Powell reiterated that the Fed makes policy decisions based on data, not politics. The Federal Open Market Committee, the committee that votes with Mr. Powell on interest rates, will next meet for two days on Jan. 27.
more: Powell says the Federal Reserve has been hit by Justice Department subpoenas and threats of prosecution.
Investigation raises concerns about Fed independence
The investigation raises concerns about the central bank’s independence, which have been ongoing since last year, when President Trump began publicly criticizing Powell and attempting to fire Fed President Lisa Cook over mortgage fraud charges. Cook denies the accusations and remains in office even after the Supreme Court rejected Trump’s bid to immediately remove him from office and announced he would hear oral arguments on the issue in January.
Mr. Powell’s job was also under threat last year after White House advisers alleged that he lied to Congress or mismanaged improvements to the Fed’s headquarters. The allegations came after the project’s price jumped from $1.9 billion to $2.5 billion. At the time, the Fed pushed back by posting an FAQ explaining the cost increase.
The back-and-forth over the renovations was on full display in July, when President Trump visited the construction site. The meeting had a tense atmosphere at times, with Mr. Trump and Mr. Powell arguing over renovation costs, but at other times it was friendly, with Mr. Trump patting a smiling Mr. Powell on the back while asking for a lower interest rate.
Powell’s term as Fed chair expires in May, but he has the option to serve out his term on the Fed’s board, which ends in 2028. Powell has not said whether he intends to stay on.
Trump could announce his appointment as the next Fed chairman at any time. White House economic adviser Kevin Hassett is seen as the frontrunner for the final nomination.
Hassett says he is not involved in the Justice Department investigation.
Hassett said on January 12 that he was not involved in discussions with the Justice Department and did not know whether President Trump had authorized an investigation into the Fed.
“I didn’t speak to the Justice Department before they contacted Mr. Jay, and I don’t have anything to add other than that I respect the independence of the Fed and the independence of the Justice Department. We’ll see what happens,” Hassett told CNBC’s “Squawk Box.”
Hassett hopes “everything goes well” for Powell, but noted skepticism about the renovation plan.
“We now have a building with dramatic cost overruns and plans for a building that seem to contradict testimony,” Hassett said, adding, “It seems like the Justice Department decided they wanted to see what was going on with this building, which is far more expensive than any building in Washington history.”
“If I were the Fed chairman, I would want the Fed chairman to do that,” Hassett added.
White House press secretary Caroline Levitt told reporters on January 12 that the president had not directed the Justice Department to open an investigation into Powell, but added that Trump had “every right” to criticize the Fed chair.
North Carolina senator says he will block nomination of Fed chairman
Backlash to news of the investigation was immediate.
Sen. Thom Tillis (R-North Carolina) said on January 11 that he would block anyone President Trump appoints to the central bank, including the new chairman, until legal issues are resolved.
“If there was ever any question about whether advisers within the Trump administration were actively pushing for an end to the independence of the Federal Reserve Board, there should be no doubt now. What is at stake now is the independence and credibility of the Department of Justice,” Tillis said in a statement.
Mr. Tillis serves on the Senate Banking Committee, so his position could complicate Mr. Trump’s ability to replace Mr. Powell. The Senate Banking Committee must approve nominees before reaching the full Senate for a final vote. The committee is made up of 13 Republicans and 11 Democrats.
Sen. Kevin Cramer (R-North Dakota), another member of the Senate Banking Committee, said on January 12 that Mr. Powell is a “bad Fed chairman who has had trouble negotiating with Congress, especially over overruns on delicate building renovations.”
“But I cannot believe he is a criminal,” he said in a statement shared with USA TODAY. “We hope this criminal investigation concludes quickly with the remainder of Chairman Jerome Powell’s term in office. We need to restore confidence in the Fed.”
Sen. Lisa Murkowski (R-Alaska) endorsed Tillis in a Jan. 12 social media post, saying it was right to block the Fed nominee until the situation is resolved.
“After speaking with Chairman Powell this morning, it is clear that the administration’s investigation is nothing more than an attempt at coercion,” Murkowski said. “If the Department of Justice believes that an investigation into Chairman Powell is warranted based on business expense overruns, which is not uncommon, then Congress should investigate the Department.”
He added: “The risks are too high to turn a blind eye. If the Federal Reserve were to lose its independence, market stability and the broader economy would suffer.”
The market reacts with a moderate decline
On the morning of Monday, January 12, financial markets reacted with a modest decline. U.S. stocks fell, with the S&P 500 and Nasdaq Composite Index both down 0.4% at the start of trading. The Dow Jones Industrial Average fell 0.6%.
U.S. Treasuries sold off, with the 10-year note rising 2 basis points to about 4.193% and the 5-year note rising 1 basis point to about 3.77%. The U.S. dollar fell about 0.4% against a basket of international currencies, while gold, often used by traders as a hedge against geopolitical concerns, rose more than 2%. The VIX index, also known as Wall Street’s “fear gauge,” rose nearly 10%.
“The announcement that the Fed has been served with subpoenas could initially be an opportunistic reaction that could weigh on rising yields,” interest rate analysts at TD Securities said in a note late Sunday. “However, Powell’s more combative tone, suggesting the Fed will continue to do what it believes is right, could be reassuring to investors and prevent a significant decline. In fact, markets may view this backlash against political interference as a positive sign for future Fed independence.”
(This story has been updated to add new information. )
Contributor: Andrea Riquier, USA TODAY
Contact Rachel Barber at rbarber@usatoday.com and follow her at X @rachelbarber_
