Stocks fall after Trump’s Justice Department opens criminal investigation into Fed Chair Powell

Stocks fell in early trading Monday, hours after reports that the Justice Department had opened a criminal investigation into Federal Reserve Chair Jerome Powell focused on the central bank leader’s comments to Congress about an office renovation project.

Powell, who was appointed by Trump in 2017, issued a rare video message chastising the investigation as a politically motivated effort to influence the Federal Reserve’s interest rate policy.

The Dow Jones Industrial Average fell 290 points, or 0.6%, while the S&The P 500 fell 0.4%. The tech-heavy Nasdaq fell 0.3%.

Gold and silver, safe-haven assets often seen as a hedge against the stock market, rose on Monday.

Monday’s selloff also appeared to include a reaction to a social media post by President Donald Trump advocating for a 10% cap on credit card interest rates for one year. Shares of several major banks fell in early trading.

The Justice Department’s criminal investigation follows a months-long influence campaign waged by Trump, who has frequently criticized the Federal Reserve for what he sees as a reluctance to significantly reduce interest rates.

The criminal investigation appears to focus on allegations of false comments made by Powell about a renovation of the Federal Reserve headquarters during a congressional hearing in June.

Trump has repeatedly denounced Powell for alleged excessive spending linked to the central bank’s $2.5 billion renovation project. The Federal Reserve attributes the spending overruns to unforeseen cost increases, saying the renovation of its building will ultimately “reduce costs over time by allowing the Board to consolidate most of its operations,” according to the central bank report. website.

Federal law allows the president to remove the chairman of the Federal Reserve for “just cause,” although no president has ever done so. Powell’s term as chairman will expire in May, but he can remain on the Fed’s policymaking council until 2028. Powell has not indicated whether he intends to remain on the council.

In a video message on Sunday, Powell said the allegations against him amount to “pretexts” invoked in service of the Trump administration’s pressure to lower interest rates.

“No one, least of all the chairman of the Federal Reserve, is above the law,” Powell said. “But this unprecedented action must be seen in the broader context of the administration’s ongoing threats and pressure.”

Trump denied any involvement in the criminal investigation during a brief interview with NBC News on Sunday night.

“I don’t know anything about it, but he’s certainly not very good at the Federal Reserve and he’s not very good at building buildings,” Trump said.

The president highlighted the Federal Reserve’s interest rates and said, “What should put pressure on him is the fact that rates are too high. That’s the only pressure he has,” Trump said, according to NBC News. “It has hurt a lot of people,” he added. “I think the public is putting pressure on him.”

Treasury yields rose on Monday, suggesting possible concerns about the Federal Reserve’s independence and its ability to manage inflation.

Since bonds pay a given investor a fixed amount each year, the specter of inflation risks devaluing the asset and, in turn, making bonds less attractive.

Bond yields rise as bond prices fall. When a sell-off occurs and demand for bonds dries up, bond prices fall. In turn, bond yields rise.

A longstanding rule of independence typically insulates the Federal Reserve from direct political interference.

In the event that a central bank lacks independence, authorities tend to favor lower interest rates as a means of boosting economic activity in the short term, analysts previously told ABC News. But, they added, that stance poses a significant risk in the possibility of inflation lasting for years driven by an increase in consumer demand, untethered by interest rates.