Yellen says Powell probe 'extremely chilling' for Fed independence, market should be concerned

• Yellen stated the odds Powell lied are 'zero' and believes the investigation is aimed at removing him from his position at the Fed
• The investigation involves potential perjury charges related to Powell's June testimony to Congress about an expensive Fed headquarters renovation
• Yellen condemned Trump's calls for rate cuts to reduce federal debt payments (currently $38.4 trillion), calling it 'the road to banana republic'

Summary

Former Federal Reserve Chair and Treasury Secretary Janet Yellen strongly criticized an ongoing investigation into current Fed Chair Jerome Powell, calling it "extremely chilling" for the central bank's independence. Yellen expressed surprise that financial markets haven't shown greater concern about the probe's implications.

Key Details:

The U.S. Attorney's Office in Washington, D.C., led by Trump confidante Jeanine Pirro, is investigating whether Powell lied during June congressional testimony regarding an expensive renovation project at the Fed's headquarters. The probe involves potential perjury charges, though the Justice Department has not officially confirmed the investigation.

Yellen's Response:

Yellen defended Powell, stating "the odds that he would have lied are zero," and suggested the investigation aims to force his removal from the Fed chairmanship. She warned that markets should be more concerned about threats to Fed independence.

Political Context:

President Trump has repeatedly pressured the Fed to cut interest rates, partly to reduce financing costs on the $38.4 trillion national debt. Yellen strongly rejected this approach, calling it "the road to banana republic" and stating it's irresponsible to use the Fed's overnight borrowing rate to manage government debt.

Market Implications:

The situation raises concerns about potential erosion of Federal Reserve independence, a cornerstone of U.S. monetary policy credibility. While markets haven't reacted strongly yet, the investigation represents unprecedented political pressure on the central bank leadership, potentially undermining confidence in monetary policy decision-making free from political interference.