Former Federal Reserve Chair Janet Yellen on Monday denounced the investigation into her successor, Jerome Powell, as undermining the central bank’s independence.
Yellen, who served as Treasury secretary after leaving the Fed, added that she believed financial markets should be more concerned about what she called a “very chilly” situation.
“I’m surprised the market isn’t more concerned. I think the market should be concerned,” Yellen said, according to CNBC’s Sarah Eisen.
The comments came a day after Chairman Powell acknowledged that he had been informed that the federal prosecutor’s office in Washington, D.C., was investigating whether central bank leaders lied in testimony to Congress last June about an expensive renovation project at the Fed’s headquarters. The office is led by former Fox News host Jeanine Pirro, a close friend of President Trump.
The Justice Department has not officially acknowledged the investigation into perjury.
Ms. Yellen was furious at the idea that Ms. Powell might have lied.
“Knowing Mr. Powell as well as I do, there is no chance that he lied. So I believe they are going after him because they want Mr. Powell’s seat and they want him to go,” she said.
Treasury Secretary Janet Yellen speaks with CNBC from the New York Federal Reserve Board on September 26, 2024.
David A. Grogan | CNBC
Yellen served as president during the first year of Trump’s first term, but was replaced by Powell at the end of the following year. She served as Treasury secretary under former President Joe Biden, becoming the first woman to hold either position.
During her tenure at the Treasury, critics accused Yellen of using the levers of bond issuance to take on the nation’s ballooning debt. President Trump is pushing the Fed to lower interest rates, in part to ease the cost of financing the country’s current $38.4 trillion debt burden.
Yellen said it would be irresponsible to use the Fed’s key overnight borrowing rate to manage debt.
“We have a president who says the Fed should lower interest rates to reduce interest payments on the federal debt,” Yellen said, adding, “I completely disagree with that. This is the path to a banana republic.”
Other former Fed and Treasury officials also joined the chorus of opposition to the Powell investigation.
“The reported criminal investigation against Federal Reserve Chairman Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine his independence,” the officials said in a statement. Signatories included former Federal Reserve Chairman Ben Bernanke and Alan Greenspan, former Treasury Secretaries Timothy Geithner and Henry Paulson, and a number of prominent economists.
“This practice of monetary policy in emerging markets with weak institutions has a very negative impact on inflation and broader economic functioning. There is no room for monetary policy in the United States, where our greatest strength is the rule of law, the foundation of our economic success,” the statement said.
