Former Fed chairs, some GOP lawmakers rebuke Justice Dept. inquiry of Fed Chair Jerome Powell

Lawmakers and former Federal Reserve officials rallied Monday to the defense of Fed Chair Jerome Powell, one day after the central bank said it received a grand jury subpoena from President Trump’s Justice Department.

They said the probe, which pivots on Mr. Powell’s testimony about a renovation of Fed buildings in Washington, was a thinly veiled attempt to punish Mr. Powell for his cautious approach to reducing interest rates.

Former Fed Chairs Ben S. Bernanke, Alan Greenspan and Janet Yellen accused the president of using “prosecutorial attacks to undermine that independence.”

“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” they said in a letter signed by 10 other economic officials who served in Republican and Democratic administrations. “It has no place in the United States, whose greatest strength is the rule of law, which is at the foundation of our economic success.”

U.S. stocks dove into negative territory upon opening Monday, signaling investors were rattled by the news, though major indexes rallied later in the day. The Dow Jones Industrial Average closed up 86 points, and the S&P 500 and Nasdaq finished the day in positive territory as investors shook off the Powell news.

Investors and power players in Washington were digesting a remarkable video statement, posted Sunday, in which Mr. Powell said the Justice Department’s grand jury subpoena was a pretext to harass the Fed over its interest-rate decisions.

“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,” Mr. Powell said.

The Justice Department has not revealed any details about the probe, although Mr. Powell signaled that prosecutors might believe he lied to Congress about the renovations of Federal Reserve buildings in Washington.

The Washington Times reached out to the Justice Department on which part of Mr. Powell’s testimony might be in question, but has not heard back.

For months, Mr. Trump hectored the Fed to cut interest rates steeply to give borrowers better terms and juice the economy. He’s also faulted Mr. Powell for cost overruns at a $2.5 billion renovation project at the Fed.

The unprecedented inquiry is making Democrats and some Republicans squeamish.

“After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion,” Sen. Lisa Murkowski, Alaska Republican, said on X. “If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns — which are not unusual — then Congress needs to investigate the Department of Justice.”

Like the former Fed and Treasury officials, the lawmakers worry that Mr. Trump’s pressure campaign against the Fed will undermine the central bank’s independence.

Sen. Thom Tillis, a North Carolina Republican who will not run for reelection, said on social media that he would oppose any Fed nominations that Mr. Trump sends to the Senate, claiming interference at the Fed.

And, the senator added, “it is now the independence and credibility of the Department of Justice that are in question.”

Rep. French Hill, Arkansas Republican, said he’s known Mr. Powell since the George H.W. Bush administration and he is a “man of integrity.”

“Pursuing criminal charges relating to his testimony on building renovations at a time when the nation’s economy requires focus creates an unnecessary distraction,” Mr. Hill said. “The Federal Reserve is led by strong, capable individuals appointed by President Trump, and this action could undermine this and future Administrations’ ability to make sound monetary policy decisions.”

White House press secretary Karoline Leavitt said Mr. Trump did not order the Justice Department to investigate Mr. Powell. She also said Mr. Trump has a right to criticize the Fed chair.

“He has a First Amendment right, just like all of you do. And one thing for sure, the president has made it quite clear, Jerome Powell is bad at his job,” Ms. Leavitt told White House reporters. “As for whether or not Jerome Powell is a criminal, that’s an answer for the Department of Justice.”

Lawmakers were not buying it.

“Using the threat of criminal prosecution to pressure the Fed over interest rates is a direct assault on that foundation and puts the economic security of millions of Americans at risk,” said Sen. Mark R. Warner, Virginia Democrat. “Uncertainty and instability can ripple through the economy, affecting borrowing costs and making it harder for families to buy a home, run a small business, or afford everyday necessities like food, fuel, and diapers.”

Others said the system itself was to blame for the situation.

“This episode demonstrates that our current system of setting the federal funds rate target is too arbitrary and discretionary. It leaves too much scope for subjectivity and thereby invites criticism from politicians seeking a scapegoat,” said Jai Kedia, a research fellow at the libertarian Cato Institute.

Past presidents have criticized the Fed over interest rates, but Mr. Trump has been particularly aggressive in targeting the central bank.

He tried to fire Fed Governor Lisa Cook over allegations of mortgage fraud, sparking a legal fight that’s reached the Supreme Court.

Mr. Trump last year took a hard-hat tour of the renovation project as part of his claims that the project is wasteful and potentially impacted by fraud.

The Fed Board of Governors is overseeing the renovation of two buildings, known as “The Eccles” and the 1951 Constitution Avenue building.

A Fed webpage said the board has a “constructive, collaborative, and fruitful engagement” with the National Capital Planning Commission in performing the project. The bank said cost overruns were due to mismatches in the original estimates and actual costs of materials, equipment, and labor, plus unforeseen problems such as asbestos.

Mr. Powell told Congress that many claims about a lavish Fed renovation were untrue and that overruns were due to the unexpected cost of materials and other building issues.

The situation is notable, in part, because the Fed cut interest rates at its last three meetings. 

However, central bankers are split about whether to cut this January, and Mr. Trump wanted firmer action, viewing recent cuts as too little, too late.

Mr. Trump is lining up a successor to Mr. Powell, whose term ends in May.

White House National Economic Council Director Kevin Hassett is considered the front-runner, though Mr. Trump will unveil his pick in the coming weeks.

Mr. Powell says he will serve out his term.

“Public service sometimes requires standing firm in the face of threats,” he said in his video statement. “I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.”