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The investigation of Jerome H. Powell, chair of the Federal Reserve, has prompted fierce blowback from Republicans, international policymakers, Wall Street and some Trump allies, and now threatens to undermine President Trump’s effort to assert dominance over economic decision-making. The swift and overwhelmingly negative response came after the U.S. attorney in Washington, Jeanine Pirro, informed Mr. Powell her office was initiating a criminal inquiry into the $2.5 billion renovation of the Fed’s headquarters and whether Mr. Powell had lied to Congress about the project.
The backlash is occurring at a time when Mr. Trump has become increasingly emboldened, declaring to The New York Times last week that the only limits on his power are his own “morality.” The Powell inquiry also laid bare some rare dissension within the top ranks of the Trump administration and public opposition from some of the president’s most loyal supporters.
The targeting of Mr. Powell threatens to upend the process of selecting and confirming his replacement in an orderly manner this year, potentially making it more difficult for Mr. Trump to achieve his goal of packing the Fed’s board with members who support substantially lower interest rates.
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Ms. Pirro, the U.S. attorney...
Mr. Trump delivered a broader message to Ms. Pirro and dozens of U.S. attorneys who visited the White House for a meet-and-greet last week: They were too weak, and needed to step up the pace of investigations of his enemies, according to three administration officials briefed on the exchange. They spoke on condition of anonymity to discuss internal conversations.
A person with knowledge of Ms. Pirro’s actions said Ms. Pirro, the U.S. attorney, a former television judge and longtime Trump friend has not discussed the Powell case with him, they added. Her decision to move ahead with the case came after she read news reports about cost overruns in The New York Post and The Wall Street Journal, which prompted her to assign members of her team to begin an inquiry last November, that person said.
Senior officials at the department were stunned, and annoyed, that Ms. Pirro did not consult them on an investigation of such international importance, the officials with knowledge of her actions said. Ms. Pirro also did not share information with her bosses at the main headquarters of the Justice Department — including Attorney General Pam Bondi and her top deputy, Todd Blanche — citing the discretion granted local U.S. attorneys’ offices to investigate the head of the most powerful monetary policy body on earth, according to several officials with knowledge of her actions.
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Treasury Secretary Scott Bessent...
When Treasury Secretary Scott Bessent, who is leading the process to find Mr. Powell’s replacement, caught wind of a potential investigation into the Fed chair late last year, he tried to prevent it. He thought he had been successful until last week.
When Mr. Bessent found out the investigation was moving forward, he called Mr. Trump directly. The two men spoke last Friday night and Mr. Bessent expressed frustration, telling the president the investigation could impede their plans to confirm a new chair of the Federal Reserve.
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World Bankers...
The notion that the credibility of the world’s most important economic institution could be eroded continued to raise alarm among global economic leaders. On Tuesday, a dozen central bankers expressed their support for Mr. Powell in a statement, including Christine Lagarde, the president of the European Central Bank, which sets rates for the 21 eurozone countries; Andrew Bailey, the governor of the Bank of England; Tiff Macklem, the governor of the Bank of Canada; and Chang Yong Rhee, the governor of the Bank of Korea.
“We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” the statement published on Tuesday said. “The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve.” The central bankers praised Mr. Powell’s service and 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,” they wrote.
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Wall Street...
The attack on Mr. Powell also prompted pushback from Wall Street. “Everyone believes in Fed independence,” Jamie Dimon, the chief executive of JPMorgan Chase, said on Tuesday after the bank released its quarterly earnings. “Anything that chips away at that is probably not a great idea and in my view will have reverse consequences,” he said, predicting higher inflation expectations and “probably” increased rates over time.
Calls to preserve the Fed’s independence did not deter Mr. Trump from criticizing Mr. Powell. In a Truth Social post on Tuesday, the president reprimanded him for being “too late” if he does not cut interest rates. In a speech on the economy later on Tuesday, the president took it a step further: “That jerk will be gone soon.”
© 2015 Mutual Fund Observer. All rights reserved.
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