The US Department of Justice has launched a criminal investigation into Federal Reserve Chair Jerome Powell, a move that has sent shockwaves across global markets and Washington, D.C. The investigation centers on a claim that Powell mismanaged and lied to Congress about the central bank’s $2.5 billion renovation of its headquarters. However, many believe that the real reason behind the investigation is President Trump’s frustration with Powell’s refusal to cut interest rates.
Trump has publicly attacked Powell, calling him “incompetent” and floating the idea of firing him. However, Powell has maintained that the investigation is not about his testimony or Congressional oversight, but rather a consequence of the Federal Reserve setting interest rates based on its assessment of what serves the public, rather than following the President’s preferences.
Economist Jason Furman, who worked under the Clinton and Obama administrations, notes that there is no historical precedent for prosecuting a Federal Reserve Chair in the United States. He believes that the investigation is an attempt to undermine the independence of the Federal Reserve, which is authorized by Congress to set monetary policy independent of the President’s wishes.
Furman warns that a Federal Reserve that is not independent could lead to higher inflation, higher interest rates, and economic instability. He praises Powell’s integrity and commitment to the Fed’s independence, and notes that the widespread support for the Fed from across the political spectrum is a testament to its importance.
The investigation has also drawn comparisons to other countries where central bank leaders have been prosecuted or jailed, such as Argentina, Indonesia, Turkey, and Zimbabwe. However, Furman believes that the US is different and that such tactics will not work here.
At the heart of Trump’s frustrations with Powell is his desire for lower interest rates, which he believes would boost the economy. However, Furman notes that Trump’s demands are outside the bounds of good-faith discussion and are not supported by the economic or business community. Despite the investigation, Furman believes that the Fed’s independence and integrity may be strengthened by this experience, and that the Congress, business community, and courts will continue to support the Fed’s independence.