Why criminal investigation into Fed chair crosses red line for key Republicans

Even for some Republicans who’ve been staunch supporters of U.S. President Donald Trump, the move by the Department of Justice to launch a criminal investigation into the Federal Reserve and its chair Jerome Powell is a red line that should not be crossed. 

Trump has made no secret of his distaste for Powell, insulting the central banker on social media for not reducing interest rates sharply enough and trying to humiliate him on live television during a tour of the controversial $2.5 billion US renovation of the Federal Reserve Bank headquarters in Washington last summer. 

Just two weeks ago, Trump accused Powell of “gross incompetence” over the renovation and told reporters, “We’re going to probably bring a lawsuit against him.” 

That’s why it’s pretty hard to take at face value Trump’s response when NBC News asked him Sunday night about the investigation: “I don’t know anything about it.”

A criminal investigation into a sitting Fed chair has never happened before, according to historians. It follows a succession of criminal probes into officials who’ve clashed with Trump and sets the stage for a pitched battle over the independence of the central bank. 

Powell has called the threat of criminal charges against him a consequence of acting independently rather than bending to Trump’s wishes.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” he said in a video posted to the Fed’s website.

Powell is far from alone in seeing the investigation as a pressure tactic aimed squarely at undermining the Fed’s independence. 

Every living former chair of the Fed — along with former Treasury secretaries from both parties — signed a letter Monday criticizing the DoJ for the probe. 

"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," said former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan in the statement.

Peter Loge, director of the School of Media and Public Affairs at George Washington University, calls it “a really big deal” that the DoJ is investigating Powell and the Fed.

“Interfering with the independence of the Fed is unsurprising from Trump, but is also unprecedented,” Loge told CBC News.

“American presidents have expressed their frustration at decisions independent agencies have made, but they've always gone along with those decisions because that's how the system works best,” he said. 

“President Trump is injecting politics into independent processes in ways no president has before."