Introduction to the Investigation
Federal prosecutors in the United States have launched a criminal investigation into Federal Reserve Chairman Jerome Powell’s testimony before Congress about the $2.5 billion renovation of the Federal Reserve’s headquarters in Washington, DC. Powell confirmed the investigation in a statement on social media.
Background of the Dispute
The dispute between US President Donald Trump and Powell started during Trump’s first term in office and has continued since his return to the White House. The two have repeatedly clashed over interest rate decisions made by Powell. The Fed chairman has stressed that the central bank must set policy independently, guided by economic data rather than political pressure.
What Triggered the Dispute
Trump has been increasingly vocal in his criticism of the Fed’s decisions, particularly in March, when the US central bank kept interest rates stable. The president wrote that the Fed would be “MUCH better off cutting interest rates.” Trump also visited the Fed’s headquarters, the first such trip by a sitting president in decades, in what was widely seen as an expression of his dissatisfaction with Powell.
Pressure on Powell
The growing speculation about Powell’s successor has highlighted the pressure on the chairman. Trump said he would announce Powell’s successor in January 2025. The list of possible successors includes long-time Trump supporter Kevin Hassett, former Fed Governor Kevin Warsh, current Fed Governor Christopher Waller, and BlackRock executive Rick Rieder.
Why is Powell Being Investigated?
The investigation follows Powell’s appearance before the Senate Banking Committee in June, when he downplayed cost overruns related to the renovation of the Fed’s office and unnecessary luxury amenities. Senate Banking Committee Chairman Tim Scott had raised concerns about the project, which will be funded by the Fed itself rather than taxpayers.
Powell’s Response to the Investigation
In a video statement, Powell called the investigation an "unprecedented action" that he said was actually related to the Trump administration’s pressure on interest rate policy. Powell stated that he would continue to do his job “with integrity and a commitment to serving the American people.”
The Importance of the Fed’s Independence
The Fed’s primary mission is to set interest rates, keep inflation near its 2 percent target, support maximum employment, and keep the financial system stable. The Fed’s independence is widely seen as crucial to avoid political pressures that are often based on short-term goals. The bank’s decisions to lower or raise interest rates are critical to preventing high inflation and stabilizing the U.S. economy during downturns.
Impact of the Investigation
The inquiry sparked a selloff in U.S. stocks and the dollar, while gold rose to a record price. Trump denied any knowledge or involvement in the Justice Department investigation, but reiterated his belief that Powell was "certainly not very good at the Fed and not very good at building buildings.” The investigation has raised concerns about the potential impact on the US economy and the independence of the Federal Reserve.
