Fed's legal fight with DOJ may curb prospects for interest rate cuts

The Justice Department has opened a criminal inquiry into the Federal Reserve and issued subpoenas, and Chair Jerome Powell has publicly contested the probe. Analysts say the dispute has made additional interest rate cuts this year less likely.

The Justice Department has opened a criminal inquiry into the Federal Reserve and issued subpoenas to the central bank. Chair Jerome Powell has contested the inquiry, saying the threatened charges relate to his prior Senate testimony about renovation cost overruns and that the inquiry appears aimed at pressuring monetary policy. Market participants and analysts are reassessing expectations for future interest-rate moves in light of the dispute. Key points: - The Justice Department has launched a criminal investigation and served subpoenas to the Federal Reserve, as reported. - Powell stated the inquiries concern his past Senate testimony on Fed building renovation costs and described the legal pressure as an attempt to influence rate decisions. - Several analysts now view further interest-rate cuts this year as less likely, and the Fed's policy committee is scheduled to announce its next rate decision on Jan. 28. Summary: The reported investigation and Powell's response have already shifted expectations about the timing and likelihood of additional rate cuts. The next formal monetary policy step is the Fed's Jan. 28 rate decision, and other legal and personnel developments remain undetermined at this time.