Chair Powell revealed on Sunday that the Fed had received subpoenas last week related to remarks he made to Congress this past summer regarding cost overruns for a $2.5 billion building renovation project at the Fed's headquarters in Washington.
His language was notable for its directness: “This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role ... Those are pretexts. 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."
What was also notable was the pushback from the president’s side of the aisle. Republican Senator Thom Tillis, a member of the powerful Senate Banking Committee that approves Fed nominees, said the threatened indictment calls into question the Department of Justice's "independence and credibility". Tillis also stated that he would oppose any Trump nominees to the Fed, including the coming choice of Powell’s successor, "until this legal matter is fully resolved."
The immediate market impact was limited, with U.S. stock futures dipping slightly and the rates market pricing in only a slightly higher chance of near-term interest rate cuts.
The dollar took the brunt of any investor misgivings. The greenback fell by the most in three weeks on Monday against a basket of currencies. Investors shifted into safe havens, with gold hitting a record high above $4,600 per ounce and the safe haven Swiss franc strengthening against the dollar.
Asian equity markets weren’t bothered much. Chinese stocks rose to a new 10-year high on Monday, driven by artificial intelligence and commercial aerospace shares. Japan’s markets were closed today.
European shares dipped early on Monday, though this may have been driven less by the U.S. Justice Department’s threats to Powell and more by Trump’s call on Friday for a one-year cap on credit card interest rates at 10%. This move appeared to weigh on banks, with Barclays shares dropping to their lowest level in a month at one point on Monday.
The other major news of the weekend was the crackdown on the escalating protests in Iran against the clerical establishment. More than 500 people have been killed in the unrest and over 10,000 have been arrested, a rights group said on Sunday.
Oil prices were down slightly on Monday, after Iran said it had "total control" over the situation, which may have eased some investor concerns about supply disruptions from the OPEC producer.
Both Brent crude and WTI rose more than 3% last week – their biggest such rise since October. Trump is expected to meet senior advisers on Tuesday to discuss options for Iran, a U.S. official told Reuters.
