U.S. Prosecutors Investigate Fed Chair Powell

Kristi Noem (0:00)

You're about to make a trade. Which you do you listen to?

Jerome Powell (0:03)

Is it get optioning those options? Or, let's do a little research.

Luke Vargas (0:11)

Learn more at finra.org/tradesmart. The Justice Department threatens Fed Chair Jerome Powell with a criminal indictment in what he calls an attack on the Central Bank's independence. Plus, President Trump moles intervention in Iran as protest deaths rise.

Donald Trump (0:31)

We're looking at it very seriously. The military is looking at it. And we're looking at some very strong options. We'll make a determination.

Luke Vargas (0:38)

And the latest from Minnesota as more federal agents head to the state. It's Monday, January 12th. I'm Luke Vargas for The Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today. US prosecutors have launched an investigation into Fed Chair Jerome Powell threatening a criminal indictment over his testimony last year concerning the bank's building renovation project. We report the investigation is being run out of Washington's US. Attorney's Office, overseen by close ally of the president, Jeanine Pirro, and concerns the Fed's spending records. Trump last month threatened a lawsuit against Powell, alleging incompetence over the renovation of two historic buildings that's been hit by cost overruns. In a video posted by the Federal Reserve, Powell denied any wrongdoing and called the renovation project pretext for an attack on the central bank's independence.

Jerome Powell (1:34)

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. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether, instead, monetary policy will be directed by political pressure or intimidation.

Luke Vargas (1:57)

Powell said potential criminal prosecution wouldn't affect his ability to serve out his term as Fed chair, which ends May 15th, but that doesn't mean investors will be ignoring these developments, as Journal Finance editor Alex Frangos is here to discuss. Alex, you've seen Powell's comments. Many have. What was your reaction?

Alex Frangos (2:15)

It was definitely stronger than he usually is. He's a very technocratic, careful guy, you know, tends not to try to make waves in what he says. I mean, Fed chair is like the consummate kind of person who goes before Congress and says nothing for four hours. So for him to come out and do a video, put it on X, put it out on 730, just as the NFL games are ending, knowing, you know, who the audience is, it's a pretty strong statement.

Luke Vargas (2:41)

Alex, we've still got a few hours until Markets open, but I'm assuming we're seeing a reaction. What are you hearing?

Alex Frangos (2:46)

Yeah, so far, negatively. It's not massive so far, but the dollar is definitely weaker. Gold is at a record, went up another 2%. You're seeing long-term bond yields rise, which is an indication that investors are nervous about the far future and stock futures are down. So generally, it's a negative reaction. This definitely, you know, makes people worried, not just about the short term, Powell's term is up in May. I mean, like, what's the difference, right? But he would continue to serve on the board as a board member for another two years. So there's the possibility that gets undone. The big implication is for his successor, whether it's one of the Kevins, Kevin Hassert or Kevin Warsh, who are the top candidates to replace him, they now have to go in thinking, well, I want to be independent, but...

Luke Vargas (3:28)

Look what happened to the guy before me.

Alex Frangos (3:30)

Exactly.

Luke Vargas (3:31)

You're turning our attention to the distant future, which is helpful, but we do have a Fed meeting later this month and two more, assuming Powell serves out his term till May 15th. I mean, how does this change the context heading into those meetings?

Alex Frangos (3:43)

Well, he's not fired. They didn't say he's fired, and he's not indicted. This was questions from a grand jury. Powell came out fighting, put out the statement, saying he's not going anywhere. So there's no indication that this is going to make a change for the meetings upcoming. But overall, all of this is that there's the Lisa Cook case. There's the other Fed member who Trump is trying to fire, whose case is going before the Supreme Court, and that's going to set a very big precedent about how much the president can, in fact, exert this power to remove a Fed chair or a Fed board member.