Jay Powell on his way to jail?
The political circus threatening to burn the bond market
The most expensive building in the world or just an excuse to kneel?
Last Friday, the 9th of the month, Jerome Powell discovered that even being the person who prints money does not grant immunity from federal prosecution.
As reported in The New York Times on the 11th of the month, Powell received a summons for questioning on suspicion of a criminal offense – allegedly he "modified" the truth in his testimony before Congress and the Senate last June regarding the project to expand the Federal Reserve's headquarters building.
This is a $2.5 billion story, an amount that could have bought a lot of industrial peace, but instead it is generating the noise of a construction site within the trading room.
This drama is not about architecture, not at all...
It is about who holds the reins of the American economy.
The market is not buying the story about building irregularities, it sees here a targeted attempt to eliminate the central bank's independence.
What happens when a Fox News star meets the Federal Reserve chairman
The investigation is being conducted in Washington D.C. by Jeanine Pirro, a former prosecutor from New York who became a Fox News show host and is now trying to show Powell who's boss.
Powell, for his part, did not back down.
In a sharp post on X, he clarified that even the Federal Reserve chairman is not above the law, but emphasized that this is an unprecedented step stemming from political threats and pressures from the administration.
Powell claims that the Department of Justice is using his past testimonies as a flimsy excuse for intimidation, while he is simply performing his duty without fear or political bias, setting interest rates according to the public interest and not according to the president's preferences.
Trump's attack and the ripple effect in the bond market
Donald Trump claims he "knows nothing" about the Department of Justice investigation, but the scent of his previous attacks on Powell – accusing him of not lowering interest rates fast enough – still chokes the room.
Trump was enraged by the building expenses, while he himself invested a fortune in renovating the White House ballroom.
This tension is already causing a breakdown in Washington, Republican Senator Thom Tillis announced he would oppose any new Federal Reserve nominee until the legal issue is resolved, which constitutes a direct threat to the president's agenda.
For investors, this is a ticking time bomb.
David Bassanese, chief economist at Betashares, warns that this political manipulation will harm market confidence, raise long-term bond yields and push up mortgage rates for all of us.
Powell, for his part, echoed the big question – will the central bank continue to rely on evidence and economics, or will it be subdued by political pressure and intimidation.
Currently Powell is on his back foot, but when criminal prosecution becomes a weapon in the confrontation between the president and monetary policy, the market is likely to enter a fit of rage.
If the Federal Reserve's independence erodes, the $2.5 billion invested in the building will be the American economy's smallest loss.
Apparently, in the current administration, if you don't lower interest rates fast enough, someone will make sure to take you off the road.
Meanwhile, investors are reacting with panic.
S&P500 futures are down 0.6%
Nasdaq futures are down 0.86%
Someone in New York shouted action – and you, friends – the viewers
We wish you pleasant viewing