Federal prosecutors have opened a criminal investigation of Federal Reserve Chair Jerome Powell over his June testimony before Congress about the central bank’s $2.5 billion renovation of its headquarters in Washington, DC. The stunning action against the independent Federal Reserve was met with an equally extraordinary statement posted by Powell in a video Sunday night, in which he said the investigation was a direct result from his ongoing struggle with the administration over interest rates.
Powell said it was a consequence of broader “threats and ongoing pressure” by 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 said in a statement late Sunday.
The probe sends a chilling message to Powell – and to whomever might next lead the Fed. President Donald Trump’s unyielding attacks on the Fed chair, whom the president has said he will not renominate, have hammered on the Fed’s traditional political independence. Trump has even said he should have a say in rate decisions.
But the criminal probe takes Trump’s fight with the Fed to a whole new level. It shows that whoever Trump selects to replace Powell at the conclusion of his term in May will face continuing pressure from the administration to lower interest rates. Investors and economists across the globe prize the Fed’s independence. It guarantees policymakers will think of the long-term ramifications of setting monetary policy – and not short-term political whims – when steering the economy.
