Every living former head of the Federal Reserve condemned an “unprecedented” attempt by the Trump administration to weaken the independence of the US central bank after the Justice Department opened a criminal investigation into its chairman, Jerome Powell.
Former Fed chairman Alan Greenspan, Ben Bernanke and Janet Yellen warned that similar attacks in other countries had “extremely negative consequences” on the cost of living – and argued that they “do not happen” in the US.
Late Sunday, it emerged that the Justice Department served the Fed with grand jury subpoenas on Friday, threatening criminal indictment related to Powell’s testimony before the Senate Banking Committee last June regarding the renovation of the Fed’s historic office buildings in Washington DC.
Related: Justice Department opens investigation into Jerome Powell as Trump ramps up campaign against Federal Reserve
In response, Powell claimed he was threatened with criminal charges because the Fed set interest rates “based on our best assessment of what will serve the public, rather than the president’s preferences.”
The move amounts to a significant escalation in Donald Trump’s extraordinary assault on the Fed’s independence. The US president has repeatedly blamed Powell and the central bank for refusing to budge from his demands for rapid rate cuts and has launched an aggressive campaign to exert greater control over his decisions.
Several Republicans criticized the Justice Department’s pursuit of Powell on Monday.
Thom Tillis of North Carolina, a member of the Senate banking committee that oversees Fed appointments, said he would oppose any nominee for the central bank “until this legal matter is fully resolved.” Kevin Cramer of North Dakota, another member of the committee, also called for a quick end to the investigation.
Related: Fed Up: Inside Trump’s Unprecedented Attempt to Take Control of the US Central Bank
Former Fed officials and policymakers have also sounded the alarm, warning that the move could harm the US economy. “The reported criminal investigation into Federal Reserve Chairman Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence,” a direct statement signed by 13 former senior officials., including Greenspan, Bernanke and Yellen, said. “This is how monetary policy is done in emerging markets with weak institutions, with extremely negative consequences for inflation and the performance of their economies in general.
“It has no place in the United States, whose greatest strength is the rule of law, which underpins our economic success.”
Economists also warned that Trump’s attempts to influence the Fed risked plunging the US into a period of 1970s-style inflation and triggering a global backlash in financial markets.
A number of analysts drew parallels with the timing of the surge in prices after then-President Richard Nixon pressured Fed Chairman Arthur Burns to ease monetary policy to help smooth his 1972 election campaign.
On Monday, however, Wall Street was calm. The benchmark S&P 500 was unchanged at lunchtime in New York, while the technology-focused Nasdaq Composite rose 0.3%
Trump’s allies spent months last year accusing the Fed of mishandling billions of dollars in renovations. Trump has repeatedly threatened legal action.
In his response on Sunday, Powell insisted that the legal threat was “not about” his testimony last summer or congressional oversight of the Fed. “It’s about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be driven by political pressure or intimidation,” he said.
Powell, originally appointed by Trump and reappointed by Biden, has chaired the Fed since 2018. His term as chairman is set to expire in May — at which point Trump’s handpicked successor can take his place — although Powell can remain on the Fed’s board of governors until 2028.
Kevin Hassett, a senior white official and director of the National Economic Council, is seen as the favorite to succeed Powell as Fed chairman. Trump said last week that he had made a decision, and when asked by the New York Times about Hassett, Trump described him as “definitely one of the people I like.”
Asked about the Justice Department’s investigation Monday, Hassett said he respects the Fed’s independence. “I guess the question is, if you think the building cost $20 billion or $10 billion, do you think at some point it’s appropriate for the federal government to investigate? And it looks like the Justice Department has decided they want to see what’s going on there.
“And if I were the Fed chair, I would want them to do that,” he added. “I think it’s very important to understand where the taxpayers’ money is going and understand why it’s going one way or the other.”