Justice Department probe of Fed reignites autonomy debate

Synopsis

Neel Kashkari said the Trump administration’s actions against the Federal Reserve reflect monetary policy disagreements. He backed Jerome Powell after a Justice Department investigation, warning that political pressure threatens central bank independence. Despite escalating tensions, markets remain steady amid bipartisan support and expectations that the Supreme Court will recognise the Fed’s distinct status.

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According to a report by The New York Times, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, has said that the Trump administration’s actions against the US central bank over the past year are fundamentally rooted in disagreements over monetary policy. Kashkari publicly defended Federal Reserve Chair Jerome Powell following the Justice Department’s decision to initiate a criminal investigation involving the central bank.

The Justice Department last week served the Federal Reserve with grand jury subpoenas, escalating tensions between the administration and the institution. The development prompted a strong response from Powell, who, in a video message released after The New York Times revealed the investigation, accused the administration of using cost overruns linked to the Fed’s headquarters renovation as a pretext to pressure the central bank into cutting interest rates.

Kashkari aligned with Powell’s assessment, indicating that the controversy reflects a broader attempt to influence monetary decision-making rather than genuine concerns over administrative conduct. He suggested that the episode presents an opportunity to reinforce to the public why central bank independence is critical for economic stability and long-term growth in the United States.

The latest challenge to the Federal Reserve has drawn criticism well beyond Democratic circles. Global economic policymakers, Republican lawmakers and even some allies of President Donald Trump have expressed concern that targeting the central bank could unsettle financial markets and complicate the eventual transition when Powell’s term as chair concludes in May.

Despite the political escalation, financial markets have remained relatively calm. Kashkari attributed this resilience to investor confidence stemming from bipartisan congressional support for Powell and broad agreement that interest rate decisions should remain insulated from political interference.

Kashkari also pointed to recent signals from the US Supreme Court suggesting that it views the Federal Reserve as distinct from other independent agencies. Those signals take on added importance as the court prepares to hear arguments next week in a case involving Fed Governor Lisa Cook, whom Trump attempted to remove last year over allegations related to mortgage fraud.

The Supreme Court hearing is scheduled just days before the Federal Reserve convenes for its first policy meeting of the year. Following three quarter-point rate cuts in the previous year, benchmark interest rates currently stand in the 3.5 to 3.75 per cent range, a level that Kashkari has indicated leaves the central bank in a relatively comfortable position as it weighs its next policy steps.

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