In a dramatic development that has sent shockwaves through global financial markets, Federal Reserve Chair Jerome Powell has publicly disclosed that the US central bank has received grand jury subpoenas from the Justice Department. The legal action, which threatens a potential criminal indictment, is reportedly linked to Powell's congressional testimony in June regarding ongoing renovations at the Fed's headquarters.
Powell Rejects Allegations, Points to Political Motives
In a strongly-worded statement released on Sunday evening, Powell firmly rejected the notion that the Justice Department's move was genuinely about his testimony or the building renovations. "Those are pretexts," Powell stated unequivocally. He framed the threat of criminal charges as a direct consequence of the Federal Reserve's commitment to its independent mandate.
"The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president," Powell asserted. He emphasized that the core issue at stake is the very independence of the central bank. "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 added.
Market Reaction and Broader Context of Feud
The financial markets reacted swiftly to the news, interpreting the unprecedented legal threat as a sign of deepening political instability. The US dollar weakened against all its major counterparts. Simultaneously, investors flocked to safe-haven assets, with gold extending its gains to reach a new record high. Futures on the S&P 500 Index fell by 0.3%, reflecting investor anxiety.
This move by the Trump administration marks a significant escalation in the president's longstanding feud with the Fed chair. President Trump has been a vocal critic of the central bank's interest rate policy, repeatedly calling for more aggressive rate cuts to stimulate the economy. This conflict has previously seen the president attempt to fire another Federal Reserve governor, a move that remains entangled in legal challenges.
A Battle for Central Bank Independence
Powell urged that the potential indictment "should be seen in the broader context of the administration's threats and ongoing pressure." Despite the intense scrutiny and legal challenges, the Fed Chair reaffirmed his resolve. He declared his intention to continue performing his duties "with integrity and a commitment to serving the American people."
The situation presents a critical test for the institutional independence of the Federal Reserve, a cornerstone of modern US economic policy. The outcome of this confrontation could have profound implications not only for US monetary policy but also for global financial stability, as markets rely on the Fed's decisions being driven by data, not political directives.
