Even for some Republicans who’ve been staunch supporters of U.S. President Donald Trump, the move by the Department of Justice to launch a criminal investigation into the Federal Reserve and its chair Jerome Powell is a red line that should not be crossed.
Trump has made no secret of his distaste for Powell, insulting the central banker on social media for not reducing interest rates sharply enough and trying to humiliate him on live television during a tour of the controversial $2.5 billion US renovation of the Federal Reserve Bank headquarters in Washington last summer.
Just two weeks ago, Trump accused Powell of “gross incompetence” over the renovation and told reporters, “We’re going to probably bring a lawsuit against him.”
That’s why it’s pretty hard to take at face value Trump’s response when NBC News asked him Sunday night about the investigation: “I don’t know anything about it.”
A criminal investigation into a sitting Fed chair has never happened before, according to historians. It follows a succession of criminal probes into officials who’ve clashed with Trump and sets the stage for a pitched battle over the independence of the central bank.
Powell has called the threat of criminal charges against him a consequence of acting independently rather than bending to Trump’s wishes.
Federal Reserve Chair Jerome Powell says the Trump administration’s threat to indict him over comments to Congress about a building renovation project is a ‘pretext’ to gain more influence over interest rates.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” he said in a video posted to the Fed’s website.
Powell is far from alone in seeing the investigation as a pressure tactic aimed squarely at undermining the Fed’s independence.
Every living former chair of the Fed — along with former Treasury secretaries from both parties — signed a letter Monday criticizing the DoJ for the probe.
“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,” said former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan in the statement.
Peter Loge, director of the School of Media and Public Affairs at George Washington University, calls it “a really big deal” that the DoJ is investigating Powell and the Fed.
“Interfering with the independence of the Fed is unsurprising from Trump, but is also unprecedented,” Loge told CBC News.
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“American presidents have expressed their frustration at decisions independent agencies have made, but they’ve always gone along with those decisions because that’s how the system works best,” he said.
“President Trump is injecting politics into independent processes in ways no president has before.”
White House denies Trump ordered investigation
The threatened indictment is over whether Powell lied in his testimony to Congress last summer about the renovation of the Fed’s headquarters.
Trump’s press secretary Karoline Leavitt is denying the president directed the DoJ to investigate.
“The president has every right to criticize the Fed chair,” Leavitt told reporters outside the White House on Monday.
“The president has made it quite clear Jerome Powell is bad at his job. As for whether or not Jerome Powell is a criminal, that’s an answer for the Department of Justice.”
Justin Wolfers, a professor of economics and public policy at the University of Michigan, scoffs at Leavitt’s claim and says that politically motivated criminal investigations into central bankers have until now happened only in such countries as Russia, Venezuela, Argentina and Zimbabwe.
“Let’s not pretend this is anything other than the president threatening to jail the chair of the Federal Reserve Board,” he told the CBC News program Power & Politics.
‘Department of Vengeance’
Wolfers says the Department of Justice has morphed into a “Department of Vengeance” under the Trump administration.
“There’s not a person alive outside of the White House who believes this is anything other than using the machinery of government to try to bully the Federal Reserve chair,” he said.
This sort of assessment of what’s really going on is why some Republicans in Congress are calling the investigation a step too far.
Republican Sen. Lisa Murkowski of Alaska is floating the prospect of a Congressional probe into the Department of Justice’s actions.
WATCH | Federal Reserve video attempts to counter claims of cost overruns:
“It’s clear the administration’s investigation is nothing more than an attempt at coercion,” Murkowski posted on X.
“If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns — which are not unusual — then Congress needs to investigate the Department of Justice,” she wrote.
“The stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.”
North Dakota Republican Sen. Kevin Cramer, a member of the Senate banking committee, is no fan of Powell’s but opposes the investigation.
Powell “is a bad Fed Chair who has been elusive with Congress, especially regarding the overruns of the elaborate renovations of the building,” Cramer said in a statement.
“I do not believe however, he is a criminal. I hope this criminal investigation can be put to rest quickly, along with the remainder of Jerome Powell’s term.”
Economist Justin Wolfers says beyond the White House, ‘there’s not a person alive’ who sees the threat of criminal charges against U.S. Federal Reserve Chair Jerome Powell as anything but an attempt to ‘bully’ him over interest rates. Wolfers compares the tactic to Turkey, where he says ‘a populalist strongman with his own idiosyncratic ideas about economics undermined the independence of the Turkish central bank’ — and sent inflation soaring.
French Hill, the Arkansas Republican who chairs the House financial services committee, called Powell “a person of the highest integrity” in a post on X.
Pursuing the criminal charges against Powell “could undermine this and future Administrations’ ability to make sound monetary policy decisions,” Hill wrote.
The question now is whether enough Republicans will do more than just speak out. Will they actually take action that reins in Trump’s push to weaken the Fed’s independence?
The real test will come when Trump nominates a new Fed chair to replace Powell once his term ends in May.
Republican Sen. Thom Tillis, another member of the Senate’s banking committee, says he’ll refuse to confirm anyone Trump nominates to the Fed board until the investigation is dropped.
If Trump manages to install a compliant Fed chair who does his bidding, the entire premise of the central bank’s independence could be at stake, along with its credibility, with potential consequences for the U.S. financial system.
Also worth keeping an eye on: how the nation’s top court will deal with the administration’s efforts to chip away at that independence. Fed governor Lisa Cook’s court battle against Trump’s push to fire her goes before the Supreme Court on Jan. 21.
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