US prosecutors have launched a criminal investigation into Jay Powell over a $2.5 billion renovation of the Federal Reserve’s headquarters, sharply escalating the Trump administration’s confrontation with the central bank.
Powell said Sunday that the Fed received a grand jury subpoena and the threat of criminal indictment from the Justice Department in connection with his testimony before Congress last summer about the renewal on Friday.
He said the legal action is a pretext to curb the Fed’s freedom to set interest rates. It comes as Trump has repeatedly attacked Powell, calling him a “stubborn mule” for driving down borrowing costs.
“This new threat is not about my testimony last June or the renovation of the Federal Reserve buildings,” Powell said.
He said, “The threat of criminal charges is the result of the Federal Reserve setting interest rates based on our best assessment of serving the public rather than following the President’s preferences.”
Trump denied any involvement in the DoJ investigation.
“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,” the US president told NBC News on Sunday evening. He claimed the investigation had nothing to do with Powell’s refusal to cut rates.
However, the investigation will heighten investor concerns about the independence of the world’s most important central bank, a cornerstone of US economic policy that is widely viewed as vital to financial markets.
Krishna Guha, vice president of Evercore ISI and a former New York Fed official, called the move a “deeply disturbing development.”
“The Trump administration is leaving no doubt about its determination to directly and heavily influence the Fed’s policy actions by every means possible, including legal threats,” said Cornell University professor Ishwar Prasad.
Powell — whom Trump has repeatedly said he would “love” to fire — said Sunday that he would not leave the Fed because of the investigation.
“Public service sometimes requires standing firm in the face of danger,” the Fed Chairman said. “I will continue to do the job the Senate has assured me to do with integrity and commitment to serving the American people.”
Gold prices in Asia hit a record high on Monday, rising 2 percent to $4,600 a troy ounce, before falling to trade around $4,576. Bullion rallies when the Fed’s independence feels threatened.
After Powell’s statement, the dollar fell about 0.2 percent against a basket of half a dozen peers in Asia. Futures tracking the blue-chip S&P 500 stock index fell about 0.4 percent.
“If there are further attacks on the Fed’s independence, markets will begin to price in higher inflation expectations, inflation risk premiums and term premiums,” said Blake Gwynn, head of U.S. rates strategy at RBC Capital Markets. “It doesn’t seem like we’ve reached it yet, but each action is another step closer to it.”
The grand jury determines whether prosecutors have presented enough evidence to charge a person. Justice Department guidelines suggest that during their investigations, prosecutors sometimes notify subjects before seeking indictments to give them a chance to testify.
It is believed the subpoena includes requests for internal documents related to the headquarters renovation, as well as information about Powell’s preparations for testimony.
The administration has used the renovation project, which has run well over budget, as a line of attack against the U.S. central bank and Powell, whom Trump has labeled “stunner” over his refusal to lower interest rates to 1 percent.
Powell, who is set to leave the presidency in May, has previously denied claims by Russell Vought, a close Trump ally and the head of the Office of Management and Budget, that he misled Congress on the renewal.
The Fed chair said Watt’s allegations that he either lied to lawmakers or failed to inform planners were false, because the changes were not significant enough to be disclosed.
Thom Tillis, a Republican member of the Senate Banking Committee who has been one of the few in Trump’s party to dissent from the president, said on Sunday: “If there was any doubt whether advisers within the Trump administration are actively pushing to dismantle the independence of the Federal Reserve, there should be no doubt now.”
Tillis said: “It is now the independence and credibility of the Justice Department that is in question,” adding that he would oppose the confirmation of anyone named by Trump as Powell’s replacement “until this legal matter is fully resolved”.
The US President is expected to announce his selection to replace Powell in the coming weeks. White House economist and Trump ally Kevin Hassett is seen as one of the frontrunners for the role.
Elizabeth Warren, the top Democrat on the Senate Banking Committee, accused Trump of trying to “install another sock puppet to complete his corrupt takeover of America’s central bank.”
Trump has already attempted to fire Fed Governor Lisa Cook, who is under investigation, over mortgage fraud allegations. Cook has denied the allegations and is embroiled in legal action against the US president.
The Supreme Court is considering a landmark case over the executive branch’s powers to fire senior central bank officials, and will hear arguments later this month.
The DoJ did not immediately respond to a request for comment.
Additional reporting by Stefania Palma in Washington and William Sandlund in Hong Kong
