Trump’s ‘frontal attack’ on U.S. Fed sends global shockwaves

The head of the U.S. Federal Reserve disclosed a legal indictment from the DOJ, and said it was a "pretext" to gain political influence over the Fed to lower interest rates faster.

A U.S. Justice Department investigation at the U.S. Federal Reserve and a combative response by chair Jerome Powell have sharply raised the stakes in a long-running dispute that has put the independence of the world’s most powerful central bank openly on the line, investors said.

In a strongly-worded statement on Sunday, Powell disclosed a probe that threatened him with criminal indictment over a building renovation project, saying it was a “pretext” to gain political influence over the Fed to lower interest rates faster.

U.S. President Donald Trump told NBC that he had no knowledge of the Justice Department’s actions, but renewed his attacks on Powell that have grown more frequent and pointed as the Fed has chosen to cut rates more slowly than he would have liked.

The investigation and Powell’s pointed response sharply escalates a row that market observers fear risks upending the independence of the Fed, a bedrock of U.S. economic policy and a cornerstone of its financial system.

It also highlights how heavily the Trump administration’s efforts to reshape institutions from the military to the judiciary are now coming to bear on a pillar of U.S. financial strength.

The U.S. dollar was down – albeit modestly – against every major currency during the Asia session on Monday. Gold shot to a record high, U.S. stock futures dropped and markets priced in a slightly higher chance of short-term interest rate cuts.

The Canadian dollar shot up in value on Monday morning as the U.S. dollar fell.

“Fed Chair Powell has deviated from his previous approach to Trump’s threats, this time choosing to directly address the elephant in the room – that the Fed is not moving rates as the President would like,” said Damien Boey, portfolio manager at Wilson Asset Management in Sydney.