Jason Furman on DOJ Investigation into Fed Chair Powell and Market Reactions

DOJ Investigation into Fed Chair Powell

• 💡 A joint letter signed by former CEA chair Jason Furman, Yellen, Bernanke, and Greenspan criticizes the DOJ's investigation into Fed Chair Powell.
• ⚠️ The letter warns that such actions mirror those in emerging markets with weak institutions, leading to negative consequences for inflation and economic functioning.

Counterproductive and Ham-Handed Approach

• 🎯 The investigation is described as counterproductive and ham-handed, making it more likely that Jay Powell will remain on the board.
• 📉 It also makes it less likely that FOMC members will cut interest rates, as they would appear to be yielding to pressure.
• ⚖️ The courts and juries are unlikely to support the DOJ's move, making it a dangerous threat.

Market Betting Against Success

• 📈 The market is correctly betting that the president will not succeed in his efforts against the Fed.
• 💰 The administration's actions are seen as shooting themselves in the foot, as they desired lower interest rates and the Fed was already cutting.

Jeopardizing Fed Independence and Credibility

• 🧠 The threat of a criminal investigation undermines the credibility of appointing a new Fed chair if the president dictates policy.
• 🤝 There is a strong consensus that leaving the Fed to do its job is the best way to achieve economic goals, rather than using criminal prosecutions.