Stocks fell in early trading Monday after reports that the Justice Department had opened a criminal investigation into Federal Reserve Chairman Jerome Powell, focusing on the central bank leader’s comments to Congress about an office renovation project.
Powell, who was appointed by Trump in 2017, released a rare edition video message the investigation was criticized as a politically motivated attempt to influence the Fed’s interest rate policy.
The Dow Jones Industrial Average fell 290 points, or 0.6%, while the S&P500 fell 0.4%. The Nasdaq technology stock exchange fell 0.3%.
Gold and silver – safe havens often seen as a hedge against the stock market – moved higher on Monday.
The sell-off on Monday also appeared to include a response to a social media post from President Donald Trump in which he advocated a 10% cap on credit card interest rates for one year. Shares of several major banks fell in early trading.
The DOJ’s criminal investigation follows a months-long influence campaign by Trump, as he has repeatedly criticized the Fed for what he sees as an unwillingness to significantly cut rates.
Angela Weiss/AFP via Getty Images
The criminal investigation appears to center on allegations of false comments made by Powell about a renovation of the Fed’s headquarters during a congressional hearing in June.
Trump has repeatedly denounced Powell for alleged overspending related to the $2.5 billion central bank renovation project. The Fed attributes the spending overruns to unforeseen cost increases and says that renovating its buildings will ultimately “lower costs over time by allowing the Board to consolidate most of its activities,” according to the central bank report. website.
Federal law allows the president to remove the Fed chairman for “cause” — although no president has ever done that. Powell’s term as chairman ends in May, but he could remain on the Fed’s policy-setting board until 2028. Powell has not indicated whether he plans to remain on the board.
In a video message on Sunday, Powell said the charges against him amount to “pretexts” invoked in service of the Trump administration’s push for lower interest rates.
“No one — least of all the chairman of the Federal Reserve — is above the law,” Powell said. “But this unprecedented action must be seen in the broader context of the government’s threats and ongoing pressure.”
Trump denied any involvement in the criminal investigation during a brief interview NBC News on Sunday evening.
“I don’t know about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings,” Trump said.
Noting the Federal Reserve’s interest rates, the president said, “What should be putting pressure on him is the fact that interest rates are way too high.” That’s the only pressure he has,” Trump said, according to NBC News. “He hurt a lot of people,” he added. “I think the public is putting pressure on him.”
Treasury yields rose on Monday, signaling possible concerns about the Fed’s independence and its ability to control inflation.
Because bonds pay a given investor a fixed amount each year, the specter of inflation threatens to devalue assets, which in turn makes bonds less attractive.
Bond yields rise as bond prices fall. When a sell-off occurs and demand for bonds dries up, bond prices go lower. In turn, bond yields rise.
A long-standing norm of independence generally protects the Fed from direct political interference.
In cases where a central bank is not independent, policymakers tend to favor lower interest rates as a means to stimulate economic activity in the short term, analysts previously told ABC News. But, they added, this stance carries significant risk when it comes to the possibility of years of inflation fueled by a surge in consumer demand, regardless of interest rates.
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