The international financial markets are in turmoil following news that Donald Trump administration has issued a subpoena to Federal Reserve Chair Jerome Powell.
Gold, a traditional safe-haven asset, has hit an all-time high, while the dollar is weakening. U.S. stock markets have inched up on strong earnings expectations, but they’re treading on thin ice.
On January 11, Powell took to X to reveal he had received a subpoena from prosecutors.
Reports suggest prosecutors issued the subpoena alleging Powell committed perjury during a congressional hearing regarding the Fed’s 2.5 billion USD expansion.
In publicly disclosing this information, Powell has pledged to fight for the Federal Reserve’s independence.
U.S. media analysts interpret this as Powell, who had previously sidestepped conflicts with Trump, now declaring all-out war.
Trump has consistently pressured Powell to cut interest rates at every opportunity. Now, by leveraging prosecutors to issue a subpoena to Powell, he’s ratcheted up the pressure to unprecedented levels.
In response, former Federal Reserve chairs and Treasury secretaries have intervened.
They released a statement calling the investigation into Chair Powell an unprecedented attempt to undermine the Fed’s independence by weaponizing the judicial system.
All living former Fed chairs, including Alan Greenspan, Ben Bernanke, and Janet Yellen, signed the statement, along with four former Treasury secretaries.
They warned that this approach is reminiscent of emerging markets and could have dire consequences for the entire economy.
As these former economic officials pointed out, Trump’s actions mirror events typically seen in emerging markets or developing countries.
A recent case in point is Turkey. President Recep Tayyip Erdoğan has held power since 2014.
During his tenure, despite high inflation, he repeatedly ordered the central bank governor to slash interest rates to boost economic growth. When met with resistance, he simply fired the governor. These anti-market measures ultimately triggered an economic crisis.
At one point, Turkey’s inflation skyrocketed above 80%, causing the lira to nosedive by 474% over five years. This pushed Turkey to the brink of bankruptcy.
While the country has somewhat rebounded, this case starkly illustrates the consequences of an administration seizing control of the central bank.
Now, Trump appears to be taking a page from Erdoğan’s playbook. As former central bank officials and economic experts have noted, Trump has effectively dragged the U.S.’s global standing down to that of a developing nation.
Trump took office on January 20 last year. In less than a year, he’s managed to downgrade the U.S.’s status from a leading developed nation to that of a developing country.
