Fears are rising about the US Federal Reserve’s independence after the Department of Justice subpoenaed the central bank. Powell insists on setting monetary policy without political pressure. Markets react negatively, with the dollar falling against the pound and euro, and gold and silver prices rising.
The subpoena against the Federal Reserve’s chairman, Powell, intensifies the conflict between him and President Trump. Powell faces the threat of criminal investigation over statements made about renovation costs. This move is seen as an attempt to influence monetary policy in Trump’s favor, raising inflation risks.
Economist Grant Slade warns that if Trump pressures the Federal Reserve to lower interest rates, it could damage the central bank’s credibility. This could lead to instability in long-term inflation expectations, affecting the Fed’s ability to control price growth. Investors react by turning to gold, and the dollar weakens against other currencies.
President Trump denies knowledge of the subpoena against Powell, continuing his pattern of political interventions in the Fed’s affairs. Trump has previously criticized Powell and other Fed officials for not reducing interest rates. The situation highlights the ongoing struggle for central bank independence.
Fund managers are cautious about the impact of Trump’s actions on the Federal Reserve’s autonomy. Despite concerns, the Treasury market remains relatively stable. A soft labor market suggests further rate cuts by the Fed, with a 50 basis-point cut already priced in. The situation follows a series of international political moves by the Trump administration.
The pressure on the Federal Reserve raises questions about inflation projections and economic stability. Economists worry about the risks of political influence on monetary policy, which could prioritize short-term growth over long-term stability. The potential loss of Fed independence could force the central bank to make difficult decisions to combat inflation.
Read more at Morningstar: Fed Independence in Question as Trump’s DoJ Targets Powell