Last Friday, US Federal Reserve chair Jerome Powell announced that the US Department of Justice had served the central bank with grand jury subpoenas, threatening a criminal indictment related to his testimony on renovation work at the Fed.
In response, a group of leading global central bankers penned a brief statement affirming their solidarity with the Fed and defending central bank independence, which they called “a cornerstone of price, financial and economic stability.”
The latest legal attack on the Fed, following the attempt to remove governor Lisa Cook, should be condemned.
But the central bankers’ statement focus on central bank independence fails to recognise that the US's political crisis goes beyond a tussle over monetary policy.
Central bank independence may have contributed to keeping inflation in check in decades past even though it could do little against the supply-driven inflation which followed the Covid lockdowns.
But it ought not to be treated as a sacred cow. It is simply one institutional arrangement among others and one which should remain open to debate in a functioning democracy.
The far more serious question the subpoenas pose is whether the US remains one.
Trump’s threats of indictment are the latest example of his weaponisation of the DoJ to attack opponents. Last year, New York attorney general Letitia James and FBI director James Comey were indicted, while senator Adam Schiff is also under investigation.
Both the James and Comey cases were dismissed, but the threat of protracted legal fights could prevent others from standing up to the administration.
And the situation could become even more dire. On Thursday, Trump once again threatened to invoke the Insurrection Act to send in the military to quell protests in Minnesota.
Markets appear unconcerned. Last year’s tariff volatility, and the way it quickly dissipated, have vaccinated investors to Trump’s threats. Now they hardly react at all to news, assuming all will blow over.
But all is not blowing over. Politically motivated prosecutions instill fear and stifle dissent.
Whether strongly worded letters from foreign central banks add much to the debate it can most generously be said remains to be seen. But we should be clear on the nature of the threat Trump's tactics pose. It is not primarily to Fed independence, but to the freedom and democracy in the US that underpins the western financial system.