Hassett: Respect the Fed's Independence, Not Involved in This Lawsuit

Federal Reserve Chair Jerome Powell accused the Trump administration of using the threat of criminal indictment to pressure the central bank into cutting interest rates. He called the move unprecedented and a threat to the Fed's independence according to reports.

White House National Economic Council Director Kevin Hassett said the administration respects the independence of the Fed and is not involved in the ongoing lawsuit. He added that the administration has alternative legal tools if the Supreme Court rules against its current tariff strategy.

The Justice Department served the Federal Reserve with grand jury subpoenas on Friday, according to Powell. He said the probe was tied to his testimony about the renovation of the Fed's headquarters building. Powell claimed the investigation was a consequence of the central bank's rate-setting decisions, not the renovation project.

What Does This Mean for the Fed's Independence?

Powell emphasized that the Fed has historically maintained independence from the White House. He stated that the threat of criminal charges should be seen in the broader context of the administration's pressure.

Lawmakers and analysts have raised concerns about the implications of the investigation. North Carolina Senator Thom Tillis, a Republican on the Senate Banking Committee, said he would oppose the nomination of any Fed nominee until this legal matter is resolved.

How Did Markets React?

Markets reacted with volatility following Powell's comments. The US dollar weakened broadly, while safe-haven assets like gold and Treasuries saw increased demand. Analysts noted that the developments have introduced a new layer of political and institutional risk into the investment landscape.

The S&P 500 saw mixed performance, with some top gainers like Builders FirstSource and Intel rising sharply. However, other sectors like gaming and tech saw declines.

What Are Analysts Watching Next?

Analysts are closely monitoring the duration and intensity of the administration's actions. Vishnu Varathan of Mizuho in Singapore said that the key will be whether these pressures will have a lasting impact on investor confidence.

Legal experts are also scrutinizing the legitimacy of the investigation. Jeremy Kress of the University of Michigan called it pretextual and part of a broader effort to use law enforcement against political opponents.

The Fed's upcoming leadership transition is another point of focus. Powell's term as Fed chair ends in May, and the administration has yet to publicly announce a successor.

Investors are advised to keep an eye on how the situation unfolds and whether it leads to broader implications for institutional governance and central bank credibility.