Introduction to the Investigation
Federal prosecutors have opened a criminal investigation into Federal Reserve chair Jerome Powell, he announced on Sunday. In a highly unusual move, Powell disclosed that the US Department of Justice (DoJ) served the agency with subpoenas and threatened a criminal indictment over testimony he gave to a Senate committee about renovations to Federal Reserve buildings.
Background of the Feud
The long-running feud between Trump and Powell has been largely one-sided, with the US president calling the banker "Mr. Too Late" and a "numbskull". Powell’s statement on Sunday is the first time he has publicly and robustly pushed back against Trump, as he warned that the independence of the US central bank is at stake.
The Investigation
The probe is related to Powell’s testimony about the renovation of two buildings, the Eccles and 1951 Constitution Avenue buildings, which includes health and safety work such as the removal of asbestos and lead contamination. Trump has criticized the ballooning costs of the project, arguing it will cost $3.1bn, much higher than the Fed’s $2.5bn forecast. Powell is the latest to clash with Trump before facing a criminal investigation by the US DoJ.
Reaction to the Investigation
Former Fed chair Janet Yellen said the probe was "extremely chilling" and warned that "the market should be concerned". She believes the probe is an attempt to push Powell off the Fed board and install another chair who will do Trump’s bidding. Senator Elizabeth Warren, a Democrat, said she believed Trump’s plan was to push Powell off the Fed board for good and "install another sock puppet to complete his corrupt takeover of America’s central bank".
Impact on the Market
The criminal probe into Powell, together with news of continued unrest in Iran, sparked a jump in the price of precious metals. The price of gold was up 2.5% at $4,624.53 per ounce on Monday, an all-time high. Silver also hit a record high – of $85.86 an ounce – a rise of 7.3% for the day. However, reaction on US markets was muted on Monday, with the S&P 500 stock index falling by 0.2%, the Dow Jones Industrial Average falling by 0.4%, and the tech-heavy Nasdaq staying flat in opening trade.
Previous Clashes with Trump
Trump previously took aim at Lisa Cook, a governor at the US central bank, whom he tried to fire over alleged mortgage fraud. The case was blocked by a US federal court and will be heard by the Supreme Court later this month. Trump has also clashed with other officials, including ex-Federal Bureau of Investigation boss James Comey, who was accused of making false statements and obstructing justice.
Conclusion
The investigation into Powell is a significant development in the ongoing feud between Trump and the Federal Reserve. The probe has sparked concerns about the independence of the US central bank and the potential for political interference in monetary policy. As the investigation continues, it remains to be seen how it will impact the market and the future of the Federal Reserve. One thing is certain, however: the independence of the Federal Reserve is at stake, and the outcome of this investigation will have far-reaching consequences for the US economy.
