This week, many US bank CEOs came out in support of Jerome Powell after the Trump administration threatened the Federal Reserve chairman with a criminal investigation in a way that could shake the central bank’s independence for a long time.
CEOs from JPMorgan Chase’s Jamie Dimon to Brian Moynihan of Bank of America have warned that the outgoing Fed chairman’s meddling could destroy the foundation of the American economy. Their comments come as President Donald Trump is increasing public pressure on the Fed, which he has spent the past few months criticizing for its apparent unwillingness to lower interest rates. Those efforts included threatening to fire Powell and appointing loyalists to fill vacancies on the central bank’s board.
The administration’s attempt to twist the Fed’s arm reached its peak earlier this week, when Powell revealed that the central bank received subpoenas from the Department of Justice (DoJ) related to the renovation of the Fed’s headquarters in Washington, DC worth $ 2.5 billion. “The threat of criminal charges is the result of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the President’s preferences,” he said in a statement.
Wall Street executives may not support all of Powell’s decisions. But one thing they widely agree on is that Fed independence is the key to a sustainable economy—free from short-term political pressure.
“Everybody we know believes in Fed independence,” Dimon said during a recent interview with reporters. “Anything else [that] delaying that is probably not a good idea, and in my opinion it will have negative consequences,” the CEO added, noting that the DoJ investigation could eventually lead to higher inflation expectations and interest rates in the long run.
Dimon’s comments marked a departure from the official’s previous stance. He managed to stay on Trump’s good agenda by striking a more moderate tone on policy disagreements. He also blamed the President himself, who called the head of JPMorgan “wrong” and suggested that Dimon “maybe wants higher prices—maybe he’s making more money that way.”
Much of Wall Street has sought to stay on Trump’s good side so far in his second term. But the President’s increasing attacks on the Fed appear to have crossed a line for many bankers, causing Powell to withdraw his support. Jeremy Barnum, chief financial officer at JPMorgan, echoed Dimon earlier this week, telling reporters that “the Fed’s loss of independence often leads to tight yields and other damage to the ongoing economic cycle,” which could harm both the US economy “and global economic stability.”
Robin Vince, head of the Bank of New York Mellon, also criticized the investigation, calling it a “counterproductive move” that could put the bond market at risk. “Doing things that will hinder this program does not seem to be the best thing to do now,” he said.
It’s “fair game” to provide critical commentary on the Fed’s decisions, including whether policymakers are acting too quickly or too slowly, according to Moynihan. But Bank of America’s CEO draws the line when it comes to threats to the central bank’s independence, which he has described as vital to America’s prosperity. “An independent Fed provides an anchor in this country to the success we all believe in,” he told CNBC yesterday (Jan. 14).
Powell’s support extended beyond sitting CEOs to former chief economists. More than a dozen past leaders, including former Fed chair Janet Yellen, Ben Bernanke and Alan Greenspan, issued a statement on Jan. 12 warn that such attacks “have no place” in the US. They describe this approach as “how monetary policy is carried out in emerging markets with weak institutions, with serious consequences for inflation and the performance of their economies in general.”
Internationally, central banks have also met with Powell. “Chairman Powell has acted with integrity, judgment and an unwavering commitment to the public interest,” reads a recent letter signed by the heads of the European Central Bank, the Bank of England and the Bank of Canada, among others. “For us, he is a respected colleague and highly respected by all who have worked with him.”
