US President Donald Trump's Department of Justice's criminal inquiry into Federal Reserve chairman Jerome Powell faced steep opposition on Monday, as politicians and former Fed chiefs rushed to defend the embattled central banker.
Mr Powell on Sunday confirmed the Fed was hit with grand jury subpoenas in response to his testimony before the Senate last June about renovation cost overruns at the central bank's headquarters.
The criminal inquiry is an escalation in Mr Trump's push for control at the Fed, the independence of which is considered to be sacrosanct among mainstream economists, investors and politicians.
Former Fed leaders Ben Bernanke, Alan Greenspan and Janet Yellen said the criminal investigation into Mr Powell is a cover to pressure the Fed into lowering the nation's interest rates.
“The reported criminal inquiry into Federal Reserve chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence,” they said in a joint statement, alongside 11 other signatories
Economists often speak of economic conditions in places such as India, Turkey and Brazil as evidence that independent central banks are crucial to sound policy.
“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” the former Fed leaders said.
In a rare video statement released on Sunday night, Mr Powell said the criminal investigation into the $2.5 billion renovation project at the Fed's headquarters was a “pretext” and vowed he would not bend to pressure from the White House.
“This is 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 directed by political pressure or intimidation,” he said.
The project became a flashpoint last year amid Mr Trump's unprecedented pressure campaign on the central bank. He has at times mused on the idea of sacking Mr Powell as Fed chairman before backing off. He later moved to oust Fed governor Lisa Cook from the Fed board in a case set to be heard before the Supreme Court.
Opposition to the inquiry also emerged on Capitol Hill as politicians said it would complicate the process to replace Mr Powell in May. Mr Trump is expected to announce the nominee for the next Fed leader imminently.
Thom Tillis, a Republican on the banking committee who is charged with vetting nominees for the Fed, said he would oppose any of Mr Trump's nominees “until this legal matter is fully resolved”. Kevin Cramer, also a Republican member on the committee and a critic of Mr Powell, condemned the renovation cost overruns but said the Fed chairman “is not a criminal”.
“I hope this criminal investigation can be put to rest quickly along with the remainder of Jerome Powell's term. We need to restore confidence in the Fed,” Mr Cramer said.
Mr Trump told reporters on Sunday that he was unaware of the Justice Department's action.
Dow, S&P hit fresh records in volatile session
US stocks ended the day in positive territory after the closing bell rang on Wall Street during a volatile trading session.
The Dow Jones Industrial Average closed 86 points up and hit an all-time high after falling 400 points earlier in the day. The S&P 500 also hit a closing record while the Nasdaq Composite shrugged off earlier losses to end the day in the green.
“The later reaction [against the criminal investigation] was intuitive insomuch as anyone that could and should speak against this has,” said Art Hogan, chief market strategist at B Riley Wealth.
“We're seeing every living former Fed chair, every single former treasury secretary … I think the market takes some solace into that."
Earlier on Monday, Ms Yellen told CNBC that markets “should be worried” about the investigation.
Peter Andersen, founder of Andersen Capital Management, said markets looked beyond the risk to Fed independence because it is not an immediate liquidity event.
“I think the market isn't reacting very strongly because we'll probably be tied up in court … It won't change who sets rates in the near term,” he said.
Meanwhile, the yield on the benchmark 10-year Treasury notes was up about 1.4 basis points at 4.185 per cent, while the 30-year bond was up 1.6 basis points at 4.835 per cent.
The US dollar index was down 0.25 per cent to 98.88. Gold, seen as a safe haven asset, was trading 2.4 per cent higher at $4,608.80 an ounce.
“Markets mostly took the news in stride but the modest financial market moves thus far have been consistent with what we would expect to see when worries flare up about Fed independence: higher Treasury yields, a steeper yield curve, a weaker dollar and a rally in gold prices,” Wells Fargo economists said.
