U.S. equity futures fell sharply Sunday night after Federal Reserve Chair Jerome Powell confirmed that he is under investigation related to testimony he gave last June concerning the renovation of Federal Reserve buildings.
Investors sought protection in the traditional safe-haven assets. Gold futures rose 1.7% to around $4,578 an ounce, while silver jumped more than 4%, reflecting renewed demand for protection against political and monetary instability. The U.S. dollar weakened modestly against several major currencies, including the Swiss franc and Japanese yen.
“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings…Those are pretexts. 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.”
Economists warn that if the executive branch successfully co-opts the Fed, it could create a “self-fulfilling prophecy” of higher long-term inflation.
“Both the currency and the bond market can collapse,” the bank wrote, citing heightened risks of inflation and financial instability. “The empirical and academic evidence on the impact of a loss of central-bank independence is fairly clear.”
“The market will punish people if we don’t have an independent Fed,” Moynihan said.
