US Dept of Justice probe into Fed chair sparks backlash

The Trump administration’s decision to launch a criminal investigation into Federal Reserve chairman Jerome Powell has drawn condemnation from former Fed chiefs and intense criticism from key members of the Republican Party.

The investigation was revealed late Sunday US time, when Powell said the Fed had received a subpoena from the Justice Department.

The investigation was approved and initiated by Jeanine Pirro, the U.S. attorney general in Washington and an ally of President Donald Trump, according to two sources with knowledge of the investigation.

Neither Attorney General Pam Bondi nor Deputy Attorney General Todd Blanche was notified last week about the Fed subpoena, one of the sources added.

The indictment threat, ostensibly focused on comments Powell made to Congress about a building renovation project, sent long-term U.S. Treasury yields higher as investors analyzed what a less independent Fed might mean for inflation and monetary policy.

If such a market reaction is amplified, it could limit Trump’s efforts to reshape the Fed, considered the most influential central bank in the world and the cornerstone of the world financial system.

A rise in long-term borrowing costs could also backfire on Trump’s efforts to address general concerns about “affordability.”

On Monday, former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan joined former government economic policy leaders from both political parties in raising the alarm.

“This is how monetary policy is done in emerging markets with weak institutions, and it has profoundly negative consequences for inflation and the broader functioning of economies,” they wrote.

Global central bankers, including the presidents of the French and Canadian central banks, openly offered solidarity.

U.S. Republican Senator Thom Tillis, a member of the Senate Banking Committee that vets presidential candidates for the Fed, called the move a “big mistake” on Sunday and said Trump nominees, including the person to replace Powell as central bank chief, would oppose the Fed “until this legal matter is fully resolved.”

On Monday, Banking Committee member Kevin Cramer and Senator Lisa Murkowski joined him in condemning this development, writing about X: “The stakes are too high to look the other way: If the Federal Reserve loses its independence, the stability of our markets and the economy overall will suffer.”

Sen. Cynthia Lummis, often one of Powell’s harshest critics, said Monday that the Justice Department’s use of the criminal code appeared to be a “heavy burden” and that she saw no criminal intent.

“We need this like we need a hole in our heads,” said Senator John Kennedy, who also sits on the banking committee.

Treasury Secretary Scott Bessent told Trump on Sunday that the investigation was “causing confusion” and could be bad for financial markets, Axios reported Monday, citing two sources.

Despite the rise in long-term interest rates, the market’s reaction has been relatively muted. Gold reached a record high and the dollar fell.

Major US stock indexes hit record closing highs following gains by AI stocks and Walmart.

Powell, who was nominated by Trump for the Fed chairmanship and confirmed in 2018, will complete his term as Fed chairman in May but does not have to leave the board until 2028.

The subpoenas from the US Department of Justice last week were related to statements Powell made to Congress about US$2.5 billion (AU$3.74 billion) in cost overruns. He renovated the building at the Fed’s headquarters and threatened criminal charges.

Powell said his statement and the amendments were excuses.

“The threat of criminal charges is a result of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the president’s preferences,” he said.

Trump told NBC News on Sunday that he had no knowledge of the Justice Department’s actions.

“I don’t know anything about it, but he’s certainly not very good at the Fed and he’s not very good at building buildings,” Trump said of Powell.

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