Former Fed leaders and US politicians oppose a criminal investigation into Chairman Jerome Powell.
Former Fed chairmen and other officials have warned of serious economic risks after the U.S. Department of Justice launched a criminal investigation into Jerome Powell.
The Trump administration's decision to launch a criminal investigation into Federal Reserve Chairman Jerome Powell is facing strong criticism from former central bank leaders and politicians. Opponents warn that this action could threaten the Fed's independence, risk inflation, and jeopardize global economic stability.
Controversial investigation into the $2.5 billion project.
Information about the investigation was revealed on January 11th when Powell stated that the Fed had received a subpoena from the U.S. Department of Justice (DOJ). These documents were initiated by Jeanine Pirro, the U.S. Attorney General in Washington, D.C., and an ally of Trump. Notably, neither Attorney General Pam Bondi nor Deputy Attorney General Todd Blanche were informed of the subpoena decision.
The investigation focused on the $2.5 billion Fed headquarters upgrade project and Powell's testimony before Congress. However, the Fed chairman asserted that this was merely a pretext to pressure the agency on interest rates. President Donald Trump later stated that he was unaware of the DOJ's actions but commented that Powell was not doing a good job at the Fed and was not good at building structures.
Strong reactions from former Fed chairmen and politicians.
In a joint statement on January 12, former Fed Chairs Janet Yellen, Ben Bernanke, and Alan Greenspan, along with numerous former officials from both parties, issued a warning. They emphasized: "This is how monetary policy is set up in markets with weak institutions, leading to negative impacts on inflation and the functioning of the economy."
In addition, support for Powell also came from the central bank leaders of France and Canada. Within the Republican Party, Senators Thomas Tillis, Kevin Cramer, and Lisa Murkowski also called the investigation a "big mistake." The lawmakers warned on social media that if the Fed loses its independence, the market and the economy will suffer severe consequences.
Financial markets are volatile due to political pressure.
The reaction from financial markets reflects concerns about the future of monetary policy. On January 12th, the yield on 10-year US Treasury bonds rose to 4.187%, while the yield on 30-year bonds increased to 4.836%. While the US dollar depreciated, gold prices reached a new record high during the same trading session.
Analysts suggest that if the market reacts more strongly negatively, Trump's efforts to pressure the Fed could be hampered. Higher long-term interest rates also risk hindering Trump's commitment to addressing inflation. Independence in setting interest rates is seen as a core element that allows policymakers to focus on price stability rather than short-term political goals.