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Every living former Federal Reserve chief on Monday attacked the Department of Justice’s probe into central bank head Jay Powell, accusing the Trump administration of running the US like an emerging market.
Ex-Fed chairs including Janet Yellen, Ben Bernanke and Alan Greenspan signed a statement blasting what they described as an “unprecedented attempt to use prosecutorial attacks to undermine [Fed] independence”.
“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,” wrote the group, which included top economic officials from Republican and Democratic administrations.
“It has no place in the United States, whose greatest strength is the rule of law, which is at the foundation of our economic success,” the statement added.
The stark rebuke came after it emerged late on Sunday that prosecutors had opened a criminal investigation into Powell over a $2.5bn renovation of the Fed’s headquarters in Washington.
Powell blasted the DoJ probe as a pretext to attack him over interest rates, which President Donald Trump has repeatedly pressured the central bank to slash.
“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,” the incumbent Fed chair said on Sunday.
Several lawmakers — including a handful of Republicans — were also quick to criticise the administration’s pressure campaign against Powell.
Thom Tillis, a Republican senator from North Carolina who sits on the powerful Senate banking committee, threatened to hold up future Fed nominations over the DoJ probe, accusing the president’s advisers of “actively pushing to end the independence of the Federal Reserve”.
Alaska Republican Lisa Murkowski called the investigation “nothing more than an attempt at coercion” on Monday, adding: “If the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.”
Elizabeth Warren, the top Democrat on the Senate banking committee, called the investigation the latest example of Trump attempting to “put [his] hand on the dials [of] monetary policy”.
“This is a question about weaponising the Department of Justice right out in plain view in order for Donald Trump to try to have a chance to take over the Fed as quickly as possible so that he can make political decisions,” Warren said in remarks at the National Press Club in Washington on Monday.
The fallout reverberated internationally as well, with Bank of France governor François Villeroy de Galhau also voicing his support for Powell on Monday.
“I want to reiterate loudly and clearly my total solidarity and admiration for Jay Powell, a model of integrity and commitment to the public interest,” Villeroy de Galhau said during a speech.
The Fed has cut rates at each of its past three meetings, leaving them at a three-year low of 3.5 to 3.75 per cent. But the reduction has not been fast enough for Trump, who has said borrowing costs should be as low as 1 per cent and has labelled Powell a “moron” and a “numbskull” for not acting more quickly.
But the DoJ investigation, which could lead to a criminal indictment of Powell, marks an escalation that has stoked serious concerns among economists about the future independence of the US central bank.
In Monday’s letter, which was signed by 13 of America’s most prominent economists, the signatories wrote: “The Federal Reserve’s independence and the public’s perception of that independence are critical for economic performance.”
As well as the three living ex-Fed chairs, the letter was also signed by former Treasury secretaries Timothy Geithner, Jacob Lew, Robert Rubin and Hank Paulson, alongside a host of senior economic advisers to presidents Joe Biden, Barack Obama, George W Bush and Bill Clinton.
These included Jared Bernstein, Jason Furman, Glenn Hubbard, Gregory Mankiw and Christina Romer, all former chairs of the Council of Economic Advisers, and ex-IMF chief economist Kenneth Rogoff.
Trump has denied any knowledge of the DoJ investigation. The president is expected to announce a replacement for Powell, whose term ends in May, in the coming weeks.
White House press secretary Karoline Leavitt said on Monday that the DoJ was “in charge” of the investigation, but added: “Jerome Powell has proven he’s not very good at his job.”
“As to whether he is a criminal, that is an answer the Department of Justice is going to have to find,” she told Fox News.
Additional reporting by Adrienne Klasa in Paris
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