Powell vs. Trump: "What's at stake is that the Fed will be run by political intimidation"

WashingtonDonald Trump appears to have started the year determined to carry out his threats. The Justice Department—which has become the tycoon's personal ministry for settling scores—has opened a criminal investigation against Federal Reserve Chairman Jerome Powell. The case comes after months of pressure from the US president against Powell for not bowing to his demands, further tightens the Republican's siege of the Fed, and represents another blow to the institution's independence. This Monday, after Powell made the situation public, three former Federal Reserve chairs closed ranks with him in the face of Trump's "unprecedented" attacks. Powell's surviving predecessors, Janet Yellen, Ben Bernanke, and Alan Greenspan, signed a letter along with a dozen other economists to express their support for the Fed chairman. "The purported criminal investigation against Federal Reserve Chairman Jay Powell constitutes an unprecedented attempt to use fiscal attacks to undermine that independence." The text emphasizes that "this has no place in the United States, for whom the greatest strength is the rule of law, the foundation of our economic success."

Powell revealed on Sunday that he faces a federal investigation related to his testimony before Congress last June regarding the renovations at the central bank headquarters. Powell, whom President Donald Trump wants out of the monetary authority, reacted strongly with a statement saying: "This is about whether the Fed will be able to continue setting interest rates based on evidence and economic conditions, or whether monetary policy will instead be driven by pressure or intimidation."

"On Friday, the Justice Department served the Federal Reserve (Fed) with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June," Powell announced in his statement, available in video and PDF format.

"The witness was referring in part to a multi-year project to renovate the Fed's historic office buildings," adds the head of the central bank, who departs from his usual cautious tone and denounces being the victim of government intimidation. Powell says that both the testimony and the Fed headquarters renovation are "pretexts," and the threat of criminal charges is a consequence of the central bank acting on its economic assessments "rather than following the preferences of the US president."

Trump and other senior government officials have criticized the Fed headquarters renovation, and last summer Trump complained that the total cost had ballooned from the previously known $2.5 billion, $700 million more than the initial plan, to $3.1 billion, a claim Powell refuted. The scene, which was captured on camera and became a source of ridicule for Trump at the time, apparently displeased the tycoon.

The head of the Fed denounced the investigation against him as an "unprecedented action that should be seen in the broader context of the threats and current pressure from the Trump administration," and reaffirmed his commitment to fulfilling his duty "without fear or political favors." The investigation against Powell comes just a few months before his chairmanship ends in May of this year. Even so, his term as governor does not expire until 2028, but Powell has not yet said what he plans to do once he leaves the Fed. Trump said last week in an interview on the New York Times He had already decided who would replace Powell at the head of the agency and would announce his decision shortly. One of the names being strongly considered as a possible successor is Kevin A. Hassett, one of the tycoon's top economic advisors. In 2017, it was Trump himself who nominated Powell as Fed chairman.

Same pattern

Powell is not the only Fed member Trump has pressured through investigations opened by his Justice Department. Last year, the Republican also tried to fire Lisa CookOne of the governors on trial, accused of mortgage fraud. At that time, the president invoked the powers granted to him by the Fed's founding charter to expel any member who had committed professional negligence or a crime. But Trump based his accusations on claims that had not been proven in court, and a federal judge blocked him. Even so, the Republican appealed the block to the Supreme Court, hoping that the conservative majority would rule in his favor.

Trump's strategy of bringing Cook's case to the Supreme Court seeks to create a precedent that would allow him to make a much more lenient interpretation of the Federal Reserve's founding charter. All of this is to ensure that, in the future, he can more easily dismiss other Fed members who don't comply with his wishes.

Dollar decline

Following the news of the Powell investigation, the dollar opened lower on Monday, falling around 0.4% to 98.76 points; conversely, the euro rose 0.33%, bringing the exchange rate to approximately $1.17/euro. As an immediate response, gold surged, breaking its all-time record once again. At 5:00 PM (local time in Catalonia), the precious metal and ultimate safe-haven asset stood at $4,622 an ounce, an intraday increase of nearly 3%. Indeed, in times of uncertainty, it is natural for the price of gold to rise; however, since it is denominated in dollars, the two values are inversely proportional. During the day, and up until the time of this writing, the rise in the price of gold moderated to 2%. Silver also reached record highs, soaring 6.87% to $84.7 an ounce.

The rebound in the stock markets was also swift. Wall Street opened Monday's session in the red. Ten minutes after the start of trading on the New York Stock Exchange, the Dow Jones Industrial Average, Wall Street's main index, was down 0.59% at 49,211 points; the S&P 500 was down 0.21% at 6,951, and the Nasdaq was down 0.09% at 23,650 points. Throughout the session and up to the time of this writing, the Dow Jones recovered some positive territory, with a modest gain of 0.2%, the S&P 500 was up 0.15%, and the Nasdaq was up 0.42%. Bank stocks led the declines at the market open, with JPMorgan and Bank of America losing 1.27% and 0.81% respectively; meanwhile, Capital One shares plummeted 5.5%.