Existential fight for the Fed: Trump's bitter row with Powell over rates is putting investors at risk, warns ALEX BRUMMER
Donald Trump’s Department of Justice is playing with fire with the criminal probe of Federal Reserve chairman Jay Powell over swelling refurbishment costs at the US central bank.Ever since Trump returned to office a year ago, he has been at war with Powell over the Fed’s refusal to bend to White House demands for lower interest rates.The Fed boss has refused to budge despite Trump’s assault on his competence, describing him among other things as a ‘nincompoop’.Disputes between governments and central banks are not uncommon, but rarely do they end well for markets. Powell has kept a dignified political silence until now, refusing to become embroiled in an altercation with the White House, which could impact investors and government policy.Powell snapped in a video on Sunday. Going directly to the American people, he declared no one is above the law but argued that the criminal probe was ‘unprecedented’ and had to be seen in the broader context of Trump’s threats. Firing line: Fed boss Jerome Powell (pictured) has refused to budge despite Trump’s assault on his competence, describing him among other things as a ‘nincompoop’Trump claimed on network TV that he played no part in the investigation over cost overruns on the £2billion renovation of Fed premises.That is hard to believe given Trump’s jibes over soaring costs when Powell gave him a preview of the works last year. Barring fraud, if public officials, wherever they are, faced prosecution on surging building costs nothing would ever get built.The curious aspect of the latest round of hostility is that it comes as the end of Powell’s term is in sight at the end of May.Moreover, US interest rates came down last year by 0.75 percentage points to a range of 3.5 per cent to 3.75 per cent. Powell’s predecessor Janet Yellen described the Justice Department intervention as ‘chilling’. She took issue with Trump’s claim that by keeping interest rates too high the Fed was raising the cost of servicing government debt. Yellen suggested that dictating interest rates, based on financing US government debt, would put the US in the road to becoming a ‘banana republic’. She has been joined in her criticism by former Fed chairs Alan Greenspan and Ben Bernanke.The rancorous dispute between the US executive and Fed cannot be good for investors. The rise of private credit, an AI-fuelled borrowing bubble and high levels of public debt, at 125 per cent of national output, already threaten a market meltdown.Latest events were enough to take some of the immediate froth off share prices, put pressure on the dollar, caused bond yields to spike, and gave a fillip to bullion as investors sought safety.The risk now is that fear will spill over to middle-America especially if the value of pension pots is endangered.If investors hit the ejector seat, a stream of sellers could become a torrent.Card trickTrump’s battle with the Fed could keep interest rates higher for longer.In the effort to demonstrate independence, members of the interest‑rate‑setting Federal Open Market Committee may decide to hold firm on rates, rather than be seen to bow to legal intimidation.The White House is seeking to circumvent the central bank by imposing a 10 per cent cap on credit card rates to encourage consumers to spend.The proposed intervention may appeal in a nation which lives on the never-never. But it sent the stock prices of big card providers Amex, Capital One, Citibank and Visa tumbling.The move could take some shine-off bumper US bank final quarter results starting with JP Morgan today.Land grabThe departure of British Land boss Simon Carter for Singapore-owned European developer P3 Logistics Parks later this year will come as a blow to shareholders. Carter wins praise for his post-Covid bet on UK retail parks.He also nursed the group’s City and central London commercial property back to health as a new generation of tenants such as broker-hedge fund Citadel and Silicon Valley tenants bid up rental yields.Carter is a personal exemplar of a public-to-private gold rush.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
