Trump is turning US into a 'banana republic': Former Fed bosses rally round Powell amid backlash over Treasury probe
Donald Trump was last night accused of turning the US into a banana republic after Federal Reserve chief Jerome Powell was threatened with criminal charges.Powell vowed not to be intimidated by the move – as his predecessors Alan Greenspan, Ben Bernanke and Janet Yellen rallied to his defence.In a joint statement, together with senior economists and former US Treasury secretaries, they said the launch of the Department of Justice (DoJ) probe was an attempt to undermine the Fed’s independence on interest rates.‘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,’ they said.‘It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.’Yellen told broadcaster CNBC the situation was ‘extremely chilling’ and that ‘the market should be concerned’, adding: ‘It is the road to a banana republic.’ Criticism: Donald Trump and Jerome Powell at the US Federal Reserve site in Washington last yearThe row prompted a fall in the dollar and a rise in the gold price in a ‘sell America’ trade.That could deepen if the Fed bows to Trump’s pressure – a move which experts fear could result in a 1970s style inflation spiral. Powell revealed in an extraordinary video statement that the DoJ had threatened criminal charges over his testimony to senators about a costly Fed building renovation project.Powell said the move was in fact a pretext to pile pressure on the Fed over rate cuts.He said: ‘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.‘Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do with integrity and a commitment to serving the American people.’Powell’s decision to issue a public rebuke to the Trump administration marks a new low in the relationship. Until now, the President’s continual scolding of the Fed – and a series of insults directed at Powell – has been met with only a low-key response from the Fed chief.Melanie Baker at Royal London Asset Management said Powell’s comments ‘signal a high level of concern that Federal Reserve monetary policy independence is under threat’ which ‘can have significant market and economic consequences’.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
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Trump is turning US into a 'banana republic': Former Fed bosses rally round Powell amid backlash over Treasury probe
