Prosecuting policy

Daily update

The US Department of Justice launched a criminal investigation into the Federal Reserve and Fed Chair Powell. In an unusually explicit statement, Powell suggested that this was because of the Fed’s refusal to meet US President Trump’s demands for rate cuts. Bond and currency market reactions signal concerns this may be a challenge to Fed independence.
The move may also help Fed independence. Powell’s defiance might signal a reluctance to quit as a Fed governor this year. There are signs the Senate may delay confirming the nomination of a new Fed chair. Concerns about market reactions and perceptions of institutional independence (in the wake of legal challenges) may become hawkish considerations in setting interest rates.
There are several Fed speakers today, but the real political and economic focus is likely to be the December consumer price data (due for release tomorrow). Technical factors distorted last month’s data lower, but the inflation reality experienced by most consumers is not driven by technical factors. It is the narrative and perception that drives the sense of an affordability crisis.
There is widespread media speculation that Japan’s Prime Minister Takaichi will call a snap election to capitalize on relatively high personal approval ratings. This would not be expected to result in significant policy changes.