“The independence of the central bank is intact,” one analyst explained. “He can still set rates. He just might go to prison for it.”
Markets held steady Monday after the Justice Department opened a criminal investigation into Federal Reserve Chair Jerome Powell, with analysts characterizing the unprecedented Fed chair investigation as “already priced in” and “frankly, overdue.”
The S&P 500 closed up 0.3% as investors processed news that the nation’s top monetary policy official faces potential prosecution over his June testimony about a building renovation.
Renovation Focus Draws Questions
“The focus on the headquarters renovation is interesting,” said one strategist at a major investment bank, speaking on condition of anonymity. “It suggests the administration is pursuing accountability in areas that happen to coincide with the president’s stated desire for lower interest rates. Those could be unrelated.”
Powell, in a rare video statement, accused the Justice Department of using criminal prosecution threats to pressure rate cuts. He described the renovation inquiry as a “pretext.”
“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 said.
A Justice Department official familiar with the matter confirmed the investigation but declined to comment on whether market stability was a consideration.
Analysts See Limited Impact
Wall Street analysts were quick to reassure clients that the investigation posed minimal systemic risk.
“Federal Reserve independence rests on federal law and decades of institutional norms,” noted one fixed-income strategist. “The criminal investigation of the Fed chair by an administration that has publicly demanded he lower rates doesn’t change that. The norms are still there. You just can’t see them right now.”
Others pointed to historical precedent. “Nixon pressured Arthur Burns. Bush’s team pressured Greenspan,” one economist observed. “This is just that, but with grand jury subpoenas and the explicit threat of imprisonment. The through-line is clear.”
Pattern Emerges
The Powell investigation follows DOJ actions against other perceived administration critics, including New York Attorney General Letitia James and former FBI Director James Comey. Courts have thrown out several of those cases, and grand juries have repeatedly refused to reindict some targets.
“The conviction rate on these political prosecutions has been essentially zero,” one legal analyst noted. “But that’s not really the point. The point is the investigation itself. And by that measure, it’s working perfectly.”
Tim Lauer, a spokesman for D.C.’s top federal prosecutor Jeanine Pirro, said: “We do not comment on ongoing investigations.”
Powell’s term as chair ends in May. He indicated the prosecution threat would not interfere with his service.
Developing.
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