A powerful coalition of America's most senior former economic officials has issued a stark warning that the United States is jeopardising its economic foundations by targeting the Federal Reserve's independence.
An Unprecedented Coalition Condemns Political Interference
In a remarkable show of unity, every living former chair of the US Federal Reserve—including Janet Yellen, Ben Bernanke, and Alan Greenspan—has jointly condemned a criminal investigation into the current chair, Jerome Powell. They describe the Justice Department's probe as an "unprecedented attempt" to undermine the central bank's operational freedom.
The investigation, approved in November by Trump-appointed US Attorney Jeanine Pirro$2.5 billion renovation of the Fed's Washington headquarters. However, the former officials and economists directly link it to political pressure from the White House over interest rate policy.
In a separate interview, former chair Janet Yellen delivered an even blunter assessment. She warned that President Donald Trump's public demands for the Fed to cut rates to lower federal debt payments represented "the road to a banana republic."
Markets and Senators React to Escalating Crisis
The extraordinary intervention has sent ripples through financial markets and political circles. Wall Street opened lower on the news, reflecting investor anxiety over the potential for political interference to unsettle monetary policy.
Senior Republican senators have broken ranks to voice their concern. Lisa Murkowski stated on social media that the stakes for investors and households were enormous, warning that market and economic stability would suffer if the Fed lost its independence. Her colleague, Thom Tillis, said the probe removed any doubt that advisers within the Trump administration were actively pushing to end the Fed's autonomy.
Economists caution that any serious attempt by the President to remove Powell before his term ends in May would likely trigger a significant market sell-off and increase mortgage and credit costs for consumers.
A Warning of 'Weak Institutions' and Economic Consequences
The joint statement, signed by 13 eminent figures from both Republican and Democratic administrations, contained language rarely used by the American economic elite about their own country. They warned the US was beginning to resemble an "emerging market with weak institutions".
"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," the group wrote. They stressed that such pressure "has no place in the United States," whose greatest strength is the rule of law.
While President Trump has denied knowledge of the investigation, the consensus among signatories is that the perception of lost independence is as damaging as the reality. Chair Powell himself connected the dots, stating the threat of criminal charges resulted from the Fed setting rates based on public interest, "rather than following the preferences of the president." This follows Trump's repeated public attacks on Powell for not cutting interest rates more aggressively, despite reductions at three of the last four Fed meetings.
