The Justice Department is investigating Federal Reserve Chair Jerome Powell for possibly lying under oath during testimony before Congress, ratcheting up President Trump’s long-running attacks on the Fed chief in an unprecedented move that quickly drew fierce pushback from Powell and others.
Although Trump has denied any involvement in the investigation — it was reportedly approved by U.S. Attorney for the District of Columbia Jeanine Pirro, a former judge and Fox News host who has long been a Trump ally — the news comes as the president continues to pressure Powell to heed his advice on interest rate policy. Using a steady stream of insult and invective, Trump has repeatedly called on Powell to slash the Fed’s benchmark interest rate in the hope of boosting economic growth. Powell has resisted as Fed officials trimmed rates while leaving them well above the level the president has demanded.
In an extraordinary video released Sunday evening, Powell said the Fed received subpoenas on Friday, “threatening a criminal indictment related to my testimony before the Senate Banking Committee last June” — testimony that included discussion of significant cost overruns and delays during the ongoing, multi-year renovations of the Fed’s 90-year-old headquarters. But Powell said the investigation is really about something else.
“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” Powell said. “It is not about Congress’s oversight role ... Those are pretexts. 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 added that the conflict could determine whether the central bank will be able to continue setting rate policy “based on evidence and economic conditions” or will be forced to defer to “political pressure or intimidation.”
Lawmakers speak out: Both Democrats and Republicans rushed to defend the Fed, with key senators in both parties warning that they may not approve any Trump pick to succeed Powell, whose term ends in May, until this issue is settled. Trump has been discussing potential candidates to replace Powell, including National Economic Council director Kevin Hassett and former Fed governor Kevin Warsh.
Republican Sen. Thom Tillis, who sits on the Banking Committee, which oversees the Fed, said the investigation raises more questions about the Trump Justice Department. “If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” he said. “It is now the independence and credibility of the Department of Justice that are in question.”
Tillis added that he would oppose making any new confirmations for the Fed “until this legal matter is fully resolved.”
Republican Sen. Lisa Murkowski echoed Tillis’s comments. “After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion,” she said Monday. “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.”
Murkowski added that lawmakers cannot allow the central bank to lose its independence. If that happens, “the stability of our markets and the broader economy will suffer,” she said.
Democratic Sen. Elizabeth Warren, who has criticized Powell’s policy decisions in the past, also defended the independence of the Fed, accusing Trump of wanting a “sock puppet” who will follow orders to the lead the central bank, putting the economy at risk.
“Donald Trump has been trying virtually from the day he got into the White House to get control of the Fed so that he can make the decisions about monetary policy,” she said Monday. “What’s the risk associated with that? Any president who can do that will want to lower those interest rates, juice the American economy in short term, even though the long-term consequences of that will be more inflation, bad for the economy overall.”
Former Fed chairs join in the criticism: Former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan expressed their concerns on Monday about political interference with the bank. They were joined by a group of prominent economic policymakers from both major parties.
In a statement, the group, which includes former Treasury Secretaries Henry Paulson, Timothy Geithner and Robert Rubin, said 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.”
Noting that political interference with central banks is commonly found in “emerging markets with weak institutions,” the economists said such interference “has no place in the United States whose greatest strength is the rule of law.”
Other economists spoke up, as well. Jan Hatzius, chief economist at Goldman Sachs, said analysts have been worried about Fed independence. “Obviously, there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns,” he said Monday at a conference in London.
University of Michigan economist Justin Wolfers said the Trump administration’s move against Powell is unprecedented in U.S. history. “This was the president threatening the Fed chair with jail,” Wolfers said. “We've seen these tactics before in Argentina, Russia, Turkey, Venezuela and Zimbabwe. This is the stuff of tin pot dictators. This is the stuff that tends to precede hyperinflation. This is the sort of story that never ends well.”
White House defends Trump’s attacks: White House Press Secretary Karoline Leavitt told reporters that Trump the president supports Fed independence but feels that rates should be lower and is free to criticize Powell. “The president has every right to criticize the Fed chair,” Leavitt said. “As for whether or not Jerome Powell is a criminal, that's an answer the Department of Justice is going to have to find out and it looks like they intend to find that out.”