Former FRB leader and former Federal Reserve Chair Powell's investigation strongly warns that it threatens the independence of the Federal Reserve.

Former Federal Reserve Chair Janet Yellen recently made remarks pointing out a fundamental crisis in monetary policy. She expressed concerns that the political investigation into current Chair Jerome Powell is significantly undermining the independence of the central bank, which is its most important asset. According to CNBC, citing reports from PANews, Yellen described the situation as “extremely frightening” and questioned whether financial markets fully recognize the severity of the issue.

Concerns Growing Over Politicization of the FRB Chair Position

Yellen’s warning is deeply connected to the fundamental issue of central bank independence. In response to suggestions that Chair Powell may have committed perjury last year, Yellen explicitly rebutted, stating, “The possibility that he committed perjury is zero,” and hinted that the investigation might be politically motivated. Her comments highlight the danger of the chairmanship of the Federal Reserve being subjected to political pressure.

Yellen’s remarks serve as a warning that the institutional design ensuring independent monetary policy is under threat. The stability of financial markets relies on the trust that central bank policy decisions are free from political influence.

Structural Issues That the Market Should Be More Concerned About

Yellen particularly emphasized the lack of concern among market participants. “I am surprised that the market is not showing more concern. In my opinion, the market should be paying more attention,” she said. This observation suggests the potential to shake the very foundation of the financial system. If pressure to investigate Powell continues, there is a risk that future monetary policy decisions could be influenced by political considerations.

If the independence of the central bank is compromised and its credibility eroded, it could lead to negative impacts on the predictability and stability of financial markets. Yellen’s warning should be seen not just as superficial news but as a structural issue that affects the overall stability of the financial system.