Central bank chiefs, bank CEOs back Fed’s Powell after Trump administration threat

By Balazs Koranyi and Manya Saini

Jan 13 (Reuters) – Global central bank chiefs and top Wall Street bank CEOs lined up in support of Federal Reserve Chair Jerome Powell on Tuesday after the Trump administration threatened him with a criminal indictment, evidence of the relationships Powell has built during his years at the Fed and of the importance of the U.S. central bank to global financial markets.

The outpouring of solidarity followed pushback from several lawmakers in President Donald Trump’s Republican Party on Monday, including members of the Senate Banking Committee who have the power to block the president’s nomination of a more biddable successor to Powell.

The current Fed chief’s term ends in May. Powell revealed late on Sunday the U.S. central bank had received subpoenas from the U.S. Justice Department about what he told Congress regarding the $2.5 billion renovation of the Fed’s headquarters in Washington.

Breaking from his past non-confrontational approach to Trump’s repeated threats to fire him, Powell called out the probe as intimidation meant to pressure the central bank to slash interest rates.

The developments were enough to provoke skepticism even from some of Powell’s bigger critics in Congress who have not balked at other efforts by Trump to reshape the Fed, including his so-far unsuccessful attempt to oust Fed Governor Lisa Cook over what the administration said was mortgage fraud.

“I mean, there were a lot of us dissatisfied with his (Powell’s) testimony,” North Dakota Republican Senator Kevin Cramer said on Tuesday. But he added that Powell’s comments last June were “hardly criminal.”

Senate Majority Leader John Thune told reporters the Justice Department should brief the Senate about its investigation of Powell at some point. “The Federal Reserve is not something to be trifled with,” the South Dakota Republican said. “If there is something there that they have, then it had better be legit.”

Trump on Tuesday demanded again that Powell lower borrowing costs after a government report showed consumer prices rose 2.7% in December from a year earlier, and reprised his accusations of wrongdoing over the renovations.

“Well, he’s billions of dollars over budget. So he either is incompetent or he’s crooked. I don’t know what he is, but he doesn’t, certainly doesn’t do a very good job,” Trump told reporters in Washington as he left the White House for Detroit, where he was slated to make an economic speech and visit a truck factory.

“We have very low inflation. That would give ‘too-late Powell’ the chance to give us a nice beautiful big rate cut,” Trump said.

Asked whether the probe of Powell affects the timing of appointing a new Fed chief, Trump said: “No.” Asked when he expects to announce that decision, Trump said: “Sometime in the next few weeks.”

Traders kept bets that still-too-high inflation would keep the Fed from cutting rates until June, and that even under a leader handpicked by Trump the central bank would deliver no more than two cuts this year – far less than the president has said he wants.

Two of Powell’s Fed colleagues echoed the financial market’s confidence that neither Powell nor his successor would change policy suddenly to suit the president.

“My hope would be that anyone who comes into that role would come in with that understanding and do their very best” to keep prices stable and promote full employment as mandated by Congress, New York Fed President John Williams said late on Monday.

“All of my colleagues and I are committed to setting monetary policy, the best monetary policy for the economy at a particular time and for all Americans,” St. Louis Fed President Alberto Musalem said on Tuesday. “I don’t expect that commitment to change, regardless of who is the chair.”

UNPRECEDENTED SUPPORT FROM POWELL’S PEERS

The heads of the European Central Bank, the Bank of England, the Bank of Canada and eight other institutions said Powell had acted with integrity and that central bank independence was crucial for keeping prices and financial markets stable.

“We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” read the rare joint statement also signed by the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France, as well as top officials at the Bank for International Settlements.

“Everyone we know believes in Fed independence,” JPMorgan CEO Jamie Dimon told reporters on a conference call on Tuesday. “This (probe) is probably not a great idea, and in my view it will have the reverse consequences of raising inflation expectations and probably increase rates over time.”

“Let’s not shake the foundation of the bond market and potentially do something that could cause interest rates to actually get pushed up because somehow there’s lack of confidence in the Fed’s independence,” BNY CEO Robin Vince told reporters on a call.

Independence from government influence has been the key foundation of modern central banking. It remained the unquestioned standard until Trump started demanding lower rates and putting pressure on individual policymakers when they failed to oblige.

Political influence over the Fed would likely rattle U.S. markets and push up domestic inflation, creating volatility the U.S. is bound to export to other parts of the world via financial markets.

Such a development would make it more difficult for others to keep prices stable and their own markets calm.

Fed independence will get renewed attention next week when the Supreme Court considers Trump’s attempted removal of Cook, who denies any wrongdoing.

(Reporting by Balazs Koranyi, Francesco Canepa, Manya Saini, Saeed Azhar, Ateev Bhandari, Michael S. Derby, Howard Schneider, Gram Slattery, David Morgan, Bo Erickson; Writing by Ann Saphir; Editing by Paul Simao)