Dive Brief:

• The Trump administration came under fire from lawmakers from both political parties for launching an investigation of Federal Reserve Chair Jerome Powell that they said jeopardizes the central bank’s independence. 
• “If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Sen. Thom Tillis (R-N.C.), said in a statement. “It is now the independence and credibility of the Department of Justice that are in question,” he said, pledging to block any nominations to fill Fed policymaking vacancies until the end of litigation.
• At least two Democratic senators, along with several former Fed and Treasury top officials, released statements denouncing the Justice Department 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,” former Fed Chairs Janet Yellen, Ben Bernanke and Alan Greenspan said Monday.

Dive Insight:

Powell released an unusual video and written statement on Sunday saying that although the probe focused on his congressional testimony in June about renovations of the Fed’s headquarters, its motive “should be seen in the broader context of the administration’s threats and ongoing pressure.”

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said.

Trump denied any awareness about the DOJ investigation. “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings,” Trump said of Powell in an interview with NBC News on Sunday.

The president for several months has called on Powell to cut interest rates by as much as 2 percentage points, saying Fed officials overestimate the threat of inflation and are inhibiting economic growth.

“The Fed has amongst the highest interest rates on earth right now and President Trump is frustrated with that,” Kevin Hassett, director of Trump’s National Economic Council, said Monday.

“But I don’t think that has anything to do with what was going on this weekend,” he said in a CNBC interview.

Policymakers trimmed the federal funds rate by a quarter percentage point at each of their three meetings beginning in September.

Traders in interest rate futures on Monday saw 95% odds that central bankers at a Jan. 27-28 meeting will hold the main rate at its current range between 3.5% and 3.75%.

Gold hit a record high on Monday, apparently on fears of higher inflation. The yield on the 10-year Treasury note rose slightly to 4.19%, while the Standard & Poor’s 500 index fell at the opening but edged higher before the end of normal trading.

Fed Governor Stephen Miran, appointed by Trump and a voter on monetary policy since September, has dissented from each policy decision since then, calling for sharper cuts to borrowing costs.

Powell’s current term as Fed chair expires in May but he may remain on the Federal Open Market Committee as a governor until 2028.

Selected by Trump to serve in the central bank’s top spot in 2018, Powell has not said whether he plans to remain on the FOMC beyond May.

Without the support of Tillis, Trump would face difficulty gaining enough votes from the banking committee for approval of any Fed nominees. The panel is split 13-11 between Republicans and Democrats.

The probe of Powell triggered criticism from other Republicans.

“It’s clear the administration’s investigation is nothing more than an attempt at coercion,” Sen. Lisa Murkowski, R-AK, said Monday in a statement.

“If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns — which are not unusual — then Congress needs to investigate the Department of Justice,” she said.

“The stakes are too high to look the other way: If the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer,” Murkowski said, backing plans by Tillis to block Fed nominees.

Sen. Elizabeth Warren from Massachusetts, the ranking Democrat on the banking panel, voiced similar concerns about a loss of central bank independence.

“As Donald Trump prepares to nominate a new Fed Chair, he wants to push Jerome Powell off the Fed board for good and install another sock puppet to complete his corrupt takeover of America’s central bank,” she said.

“Trump is abusing the authorities of the Department of Justice like a wannabe dictator so the Fed serves his interests, along with his billionaire friends,” she said.