The backlash against the investigation of Fed Chairman Powell
The Trump administration’s criminal investigation of Jerome Powell has drawn a rebuke from former Fed and Treasury officials and an outcry from some investors, reports The Wall Street Journal.
A statement from former Fed, Treasury and other officials reads:
“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. The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence. 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. 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.”
Sen. Thom Tillis, R-N.C., says he’ll block any Trump appointees to the Fed, including for the next chair, until this legal issue is resolved.
Other GOP lawmakers who are speaking up include Senate Majority Leader John Thune (S.D.); Sens. John Kennedy (La.) and Kevin Cramer (N.D.), members of the Senate Banking Committee, which will hold hearings on the next Fed chair; Sen. Cynthia Lummis (Wyo.); Sen. Dave McCormick (Pa.); Sen. Lisa Murkowski (Alaska); Sen. Susan Collins (Maine); Sen. Roger Marshall (Kan.); and House Financial Services Committee Chairman French Hill (Ark.).
The dispute is ostensibly over Powell’s testimony to Congress in June over the cost of a $2.5 billion renovation of Fed buildings. But in a statement Sunday, Powell, who had tried to ignore criticism from President Trump, called the administration’s threat of criminal charges “pretexts’’ in the president’s campaign to seize control of U.S. interest rate policy from the Fed’s technocrats, says The Associated Press.
Trump repeatedly has criticized Powell and the Fed for not moving faster to cut interest rates. Economists say a politicized Fed that caves to the president’s demands would damage its credibility as an inflation fighter and likely lead investors to demand higher rates before investing in U.S. Treasury bonds.
News of the investigation rattled markets in early trading Monday and pushed up the price of gold, which tends to increase during periods of political and economic instability, says The Washington Post. But the stock market ended up for the day, in part because investors believed the administration probably would back off its investigation, market analysts said.
Sources have told multiple news outlets that Jeanine Pirro, the U.S. attorney for D.C. and a Trump loyalist, approved of the investigation of Powell in July, according to The Hill.
Here is an explainer of why the Fed’s independence matters, from AP.
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