Federal Reserve Chairman Jerome Powell said in a statement that the US Department of Justice threatened to file criminal charges against him in connection with his testimony before the Senate last June, during which he discussed the estimated $2.5 billion replenishment. Powell called the move unprecedented and a direct challenge to the Fed’s independence.
Key quotes
The subpoenas were presented to the grand jury on Friday.
The new threat is not related to his testimony or the renewal project, but rather to the pretext.
The certificate concerns the renovation of historic buildings for several years.
On Friday, the Justice Department threatened to file a criminal indictment related to his testimony before the Senate last June.
I have carried out my duties without fear or political favour, and I will continue to do so.
The threat of criminal charges is a result of the Fed setting interest rates based on its assessment of the public interest rather than the president’s preferences.
The broader issue is whether the Fed will continue to set interest rates based on evidence and economics or will succumb to political pressure and intimidation.
Market reaction
At the time of writing, the US Dollar Index (DXY) is trading near 98.95, down 0.18% on the day.
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the New York Fed president, and four of the remaining eleven regional Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
