Some of the world’s most prominent central banks have issued a full-throated support of the Federal Reserve and its chair Jay Powell, after Donald Trump’s campaign against its independence escalated with a Department of Justice legal action.
In an unusual joint intervention, 11 central banking chiefs declared they stood in “full solidarity” with the Fed’s system of independence, which they said was a “cornerstone of price, financial and economic stability”.
“It is… critical to preserve that independence, with respect for the rule of law and democratic accountability,” read the statement, whose signatories included Bank of England governor Andrew Bailey and European Central Bank president, Christine Lagarde.
“Chair Powell has served with integrity, focused on his mandate and an unwavering commitment to the public interest. To us, he is a respected colleague who is held in the highest regard by all who have worked with him.”
The intervention, which was also signed by Bank of Canada governor Tiff Macklem and Korea’s Chang Yong Rhee, follows the decision from the Department of Justice to pursue the Federal Reserve and Powell through the courts over claims he misled a Senate committee about the renovation of the bank’s headquarters.
The move was revealed by Powell in a robust video statement in which he claimed the probe was “not about [his] testimony in June or about the renovation of the Federal Reserve buildings”.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates on our best assessment of what will serve the public rather than following the preferences of the President,” he said. “This is about whether the Fed will be able to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by intimidation.”
The Bank of England’s Andrew Bailey was among the signatories
Central banks add to support for Federal Reserve
The Justice Department’s assault has resulted in a fierce rearguard action, of which the foreign central banks’ statement ringled by the Bank for International Settlements is the latest. Powell’s three living predecessors issued a similarly fierce joint rebuke which branded the probe an “unprecedented attempt to use prosecutorial attacks to undermine [Fed] independence”.
The statement, signed by Janet Yellen, Ben Bernanke and Alan Greenspan along with former treasury secretaries from both main parties, added that the DoJ’s move was redolent of “how monetary policy is made in emerging consequences with weak institutions”.
The developments sparked a surge in the price of gold, carrying the safe haven asset to a fresh all-time high amid fears that an erosion of the Federal Reserve’s independence would reignite inflation. Silver climbed as much as six per cent, while the dollar and other US-denominated assets sold off slightly.
Amid the fallout, Trump had denied any involvement in the DoJ’s move to subpoena what is one of the world’s most important economic institutions. The pursuit is being spearheaded by the head of the US Attorney’s Office for the District of Columbia, Trump acolyte and former Fox News presenter Jeanine Ferris Pirro.
In a post on X, Pirro said her office had “contacted the Federal Reserve on multiple occasions to discuss cost overruns and the chairman’s congressional testimony but were ignored, necessitating the use of the legal process – which is not a threat”.
Her probe comes despite Powell’s term as chair culminating in May, though he is permitted to stay as a member of its rate-setting Federal Open Market Committee. Many had expected the President to install a replacement who agrees with his desire to see deeper and faster interest rate cuts.
But the DoJ’s action has threatened his ability to do so, after a Republican member of the Senate’s banking committee vowed to oppose any nominee for the Fed, “until this legal matter is fully resolved”.
“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Thom Tillis, a senator from North Carolina, said.