Core Summary

  • The Trump administration faced bipartisan criticism from lawmakers over its investigation into Federal Reserve Chairman Jerome Powell, who they said endangered the central bank's independence.
  • "If there was any doubt that advisers inside the Trump administration were actively pushing to end the Federal Reserve's independence, it should now be gone," Senator Thom Tillis (Republican, North Carolina) said in a statement. "Now the independence and credibility of the Justice Department are in question," he said, vowing to block any nominations to fill Fed policy vacancies until the lawsuit is resolved.
  • At least two Democratic senators and several former senior Fed and Treasury officials issued statements condemning the Justice Department's investigation. "This is exactly how monetary policy is set in emerging markets with weak institutions, and it would have extremely negative consequences for inflation and the functioning of their economies," former Fed chairs Janet Yellen, Ben Bernanke, and Alan Greenspan said Monday.

In-Depth Analysis

Powell on Sunday released an unusual video and written statement saying that although the investigation targeted his June congressional testimony about the Fed's headquarters renovation, its motivation "should be viewed in the broader context of government threats and sustained pressure."

"The threat of criminal charges is the result of the Fed setting interest rates based on our best assessment of the public interest, rather than deferring to the president's preferences," Powell said.

Trump denied knowing about the Justice Department's investigation. "I know nothing about it, but he's clearly not good at the Fed, and he's not good at building buildings," Trump said of Powell in an interview with NBC News on Sunday.

The president has for months called on Powell to cut interest rates by as much as 2 percentage points, saying Fed officials overestimated the inflation threat and stifled economic growth.

"The Fed currently has one of the highest interest rates in the world, and President Trump is unhappy about that," Kevin Hassett, Trump's national economic council director, said Monday. "But I don't think this is related to what happened over the weekend," he said in an interview with CNBC.

Policymakers have cut the federal funds rate by 25 basis points at each of three meetings since September.

On Monday, interest rate futures traders saw a 95% chance that the central bank would keep its main rate in the current range of 3.5% to 3.75% at its January 27-28 meeting.

Gold prices hit an all-time high on Monday, apparently due to concerns about rising inflation. The 10-year Treasury yield rose slightly to 4.19%, while the S&P 500 opened lower but edged higher before the end of regular trading.

Fed Governor Stephen Miran, appointed by Trump, has voted on monetary policy since September and has dissented from every policy decision since, calling for larger rate cuts.

Powell's current term as Fed chairman expires in May, but he could remain on the Federal Open Market Committee as a governor until 2028.

Powell, chosen by Trump in 2018 for the central bank's top job, has not said whether he plans to stay on the FOMC after May.

Without Tillis's support, Trump would struggle to get enough votes from the Banking Committee to approve any Fed nominee. The committee has a 13-11 Republican-to-Democrat seat ratio.

The investigation into Powell also drew criticism from other Republicans.

"It's clear that the administration's investigation is nothing more than an attempt at coercion," Senator Lisa Murkowski (Republican, Alaska) said in a statement Monday. "If the Justice Department thinks an investigation into Chairman Powell is justified based on project cost overruns, which are not uncommon, then Congress needs to investigate the Justice Department," she said.

"The stakes are too high to look away: if the Fed loses its independence, the stability of our markets and the broader economy will suffer," Murkowski said, supporting Tillis's plan to block Fed nominations.

Senator Elizabeth Warren of Massachusetts, the top Democrat on the Banking Committee, expressed similar concerns about the loss of central bank independence.

"When Donald Trump is preparing to nominate a new Fed chairman, he wants to push Jerome Powell off the Fed board entirely and install another puppet to complete his corrupt takeover of the U.S. central bank," she said.

"Trump is abusing the power of the Justice Department like someone who wants to be a dictator, making the Fed serve his interests and those of his billionaire friends," she said.