U.S. markets are down sharply on Jan. 12 on reports that the U.S. Department of Justice has opened a criminal investigation into Federal Reserve Chair Jerome Powell.
The criminal probe is being called an escalation by U.S. President Donald Trump in his attempts to pressure the central bank to lower interest rates.
The blue-chip Dow Jones Industrial Average is down 350 points on the news, while the benchmark S&P 500 index and technology-laden Nasdaq (NDAQ) are down 0.55% and 0.70%, respectively.
Powell took the unusual step of issuing a video statement on Jan. 11, confirming that federal prosecutors have opened a criminal investigation related to his Senate Banking Committee testimony on the situation with renovations of the Federal Reserve’s office buildings.
Trump has claimed that the renovations have gone overbudget and that Powell lied to Congress about the true cost to improve the central bank’s offices.
However, Powell said the criminal investigation was another attempt by Trump to influence the central bank’s interest rate decisions and that he will not succumb to the pressure.
Powell’s term as chair of the U.S. central bank ends in May of this year.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead, monetary policy will be directed by political pressure or intimidation,” said Powell in the video.
The Cboe Volatility Index, Wall Street’s fear gauge, moved higher in early trading on Jan. 12, reflecting that traders added to protection in the options market on news of the Powell probe.
Last year, the stock market largely ignored Trump’s attempts to pressure the Fed as the central bank cut interest rates three consecutive times as inflation eased.
The Federal Reserve is next scheduled to decide on interest rates Jan. 28 and markets widely expect that the central bank will hold off on any further cuts for the time being.
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