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Every living former Federal Reserve chief attacked the Justice Department’s investigation into central bank head Jay Powell on Monday and accused the Trump administration of running the US like an emerging market.
Ex-Fed chairmen including Janet Yellen, Ben Bernanke and Alan Greenspan signed a statement blasting an “unprecedented effort to use prosecutorial attacks to undermine the economy.” [Fed] independence”.
“This is how monetary policy is made in emerging markets with weak institutions, with very negative consequences for inflation and the functioning of their broader economies.” the group wrotewhich included top economic officials from both the Republican and Democratic administrations.
“It has no place in the United States, where the greatest strength is the rule of law, which underpins our economic success,” the statement said.
The stark rebuke came after it emerged late Sunday that prosecutors had opened a criminal investigation into Powell over a $2.5 billion renovation of the Fed’s Washington headquarters.
Powell called the DoJ investigation a pretext to attack him over interest rates, which Donald Trump has repeatedly pressured the central bank to cut.
“The threat of criminal prosecution is a result of the Federal Reserve setting interest rates based on our best estimate of what will benefit the public, rather than following the president’s preferences,” the incumbent Fed chairman said Sunday.
The Fed has cut interest rates at each of the past three meetings, leaving them at three-year lows of 3.5 percent to 3.75 percent. But the cut hasn’t been fast enough for Trump, who has said borrowing costs should be just 1 percent and branded Powell a “moron” and a “moron” for not acting faster.
But the DoJ investigation, which could lead to criminal charges against Powell, marks an escalation that has fueled serious concerns among economists about the future independence of the U.S. central bank.
In Monday’s letter, which was signed by thirteen of America’s leading economists, the signatories wrote: “The independence of the Federal Reserve and the public perception of that independence are critical to economic performance.”
In addition to the three living ex-Fed chairmen, the letter was also signed by former Treasury Secretaries Timothy Geithner, Jacob Lew, Robert Rubin and Hank Paulson, in addition to a host of senior economic advisers to Presidents Joe Biden, Barack Obama, George W. Bush and Bill Clinton.
They included Jared Bernstein, Jason Furman, Glenn Hubbard, Gregory Mankiw and Christina Romer, all former chairmen of the Council of Economic Advisers, and ex-IMF chief economist Kenneth Rogoff.
Trump has denied any knowledge of the DoJ investigation. The president is expected to announce a replacement for Powell, whose term ends in May, in the coming weeks.
