Washington (United States) (AFP) - US prosecutors have opened an inquiry into Federal Reserve Chair Jerome Powell, prompting his rare rebuke against escalating pressure from President Donald Trump’s administration – and sharp criticism from former leaders of the central bank.

In an extraordinary statement released in text and video Sunday, Powell took aim at the Trump administration’s “unprecedented action,” saying the Fed received grand jury subpoenas and threats of a criminal indictment relating to his Senate testimony in June.

The issue at hand was a $2.5 billion renovation of Fed headquarters, which Trump has repeatedly attacked Powell over. Last year, the president floated the possibility of firing Powell over cost overruns for the historic buildings’ facelift.

Powell dismissed the renovation and testimony as “pretexts.”

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said.

He vowed to carry out his duties “without political fear or favor.”

Trump has regularly slammed Powell, calling him a “numbskull” and “moron” for the Fed’s policy decisions and not cutting borrowing costs more sharply.

Powell warned Sunday: “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.”

- ‘No place’ -

On Monday, ex-Fed chiefs Ben Bernanke, Alan Greenspan and Janet Yellen joined other former economic leaders in issuing a sharp criticism of the Department of Justice’s probe.

In a joint statement, they called it “an unprecedented attempt to use prosecutorial attacks” to undermine the Fed’s independence.

“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” the statement added. “It has no place in the United States.”

Investors reacted warily, with the dollar falling against major currencies while safe-haven assets like gold rose.

The independent Fed has a dual mandate to keep prices stable and unemployment low. Its main tool is setting a benchmark interest rate that influences the price of US Treasury bonds and borrowing costs.

The Fed’s insulation from politics is considered vital for investors, and Brookings senior fellow David Wessel warned of serious consequences if the Fed came under Trump’s control.

Elected politicians could be inclined to set interest rates low to boost the economy ahead of elections, whereas an independent Fed is seen as shaping policy in the best interests of managing inflation and maximizing employment.

If Trump succeeds in influencing the Fed, the US economy could see “more inflation, and the willingness of global investors to lend money to the Treasury will diminish somewhat,” Wessel told AFP.

- Republican pushback -

While Powell’s term as chair ends in May, he could stay on the Fed’s board until 2028. The administration’s move could be seen as an effort to oust Powell before then, Wessel noted.

Already, the probe has drawn criticism from both sides of the aisle.

Republican Thom Tillis, who sits on the Senate Banking Committee, vowed Sunday to oppose the confirmation of any Fed nominee, including for the next Fed chief, until the legal matter is “fully resolved.”

“It is now the independence and credibility of the Department of Justice that are in question,” he said.

Another Republican senator, Lisa Murkowski of Alaska, supported Tillis’ move, calling the investigation “nothing more than an attempt at coercion.”

Top Senate Democrat Chuck Schumer earlier dubbed the probe an assault on the Fed’s independence.

Powell was nominated Fed chairman by Trump during his first presidency, but has come under growing pressure from the US leader to slash rates.

Trump maintained Sunday that he had no knowledge of the Justice Department’s investigation.

Last year, Trump separately attempted to fire Fed Governor Lisa Cook over mortgage fraud allegations.