Powell in the spotlight
The market has not taken the prospective prosecution of Fed Chair Jay Powell lightly. Before European markets had opened yesterday, Asian markets had been churning with news that the Federal Reserve Chairman was facing prosecution from the Department of Justice. That headline was seen as the latest escalation in a series of threats against Powell. Those threats in turn are seen as attempts to challenge the Fed’s independence from the government.
The latest challenge hasn’t formally challenged Powell’s role at the Fed with respect to the setting of monetary policy. Instead, the subpoena issued by the DoJ brings forward criminal proceedings against the Fed Chair relating to his role in championing the property renovation works at the Fed. You may recall images of an interview last year where Trump challenged Powell on the ballooning budget of such works. The market doesn’t buy the narrative that this judicial action isn’t about the White House’s distain for what it sees as unnecessarily and stubbornly high interest rates. Instead, they see it as the latest thinly veiled attempt to influence the central bank this time via the weaponisation of the judiciary.
Trump initially claimed to have played no role in the DoJ’s indictment of Powell. The Dollar took a leg lower shortly after midnight, in the early hours of Monday morning. The Dollar retains much of that discount today. Equities had also initially sold off but recovered most of their losses during yesterday’s session. This risk also increased curve steepening in the US which holds the prospect for further Dollar weakness if sustained.
Discussion and Analysis by Charles Porter
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