Ex-Fed Officials Slam DOJ Probe that Sullies Bank’s Independence

A number of former Federal Reserve chairs, Treasury secretaries, and prominent economists have spoken out in support of Fed Chair Jerome Powell and expressed alarm over the Justice Department’s threat of criminal prosecution of the central bank, Jennifer Schonberger reported for Yahoo Finance.

The investigation potentially compromises the central bank’s independence.

“The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine [the Fed’s] independence,” said a statement signed by former Fed Chairs Janet Yellen, Ben Bernanke, and Alan Greenspan, as well as four former Treasury secretaries who served under both Republican and Democratic presidents.

“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,” the statement continued.

“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 CNBC recently that the investigation compromises the central bank’s independence and said she believes financial markets should be more concerned about a situation she called “extremely chilling.”

Markets reacted in early trading, with stocks wavering on the news. The dollar, Treasurys, and US equity futures slid, though declines were modest.

Wilmer Stith, senior bond portfolio manager at Wilmington Trust, warned that bond yields could move higher, raising borrowing costs for consumers—especially for mortgages—and counteracting any relief from Fannie Mae and Freddie Mac’s $200 billion purchase of mortgage bonds.