Financial markets have taken fright amid a resumption of the row over US central bank independence between its chair and the Trump administration.
It emerged overnight that the White House was threatening to indict Jerome Powell over comments he made to Congress in relation to renovation cost over-runs at the Federal Reserve buildings in Washington DC.
Mr Powell, who has been locked in a feud with Mr Trump over the pace of interest rate cuts, responded by describing the action as a “pretext” to gain more influence over US monetary policy.
He described the threats of criminal charges as a consequence of not following the “preferences of the president”.
The dollar fell widely, and was down by a quarter of a cent against the pound, while futures indicated that US stock markets would open sharply lower as investors pondered the implications. The price of safe haven gold also hit a new record high.
Mr Powell is due to stand down at the end of his second term in May and be replaced by a successor nominated by Mr Trump.
However, a Republican on the Senate banking committee that vets nominees, suggested strong opposition to any Department of Justice investigation into Mr Powell, declaring there would be no progress on selecting a new Fed chair until the conclusion of any legal investigation.
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Mr Powell said he had been served a subpoena relating to his testimony before the committee in June where he spoke about the Fed’s $2.5bn (£1.86bn) renovation of two office buildings – a project that Trump criticized as excessive just weeks ago.
“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,” Mr Powell said.
He then went further, saying this was about whether monetary policy would be set using “evidence and economic conditions” or if it “will be directed by political pressure or intimidation”.
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Powell, who was first appointed to the role by Mr Trump and has served under four administrations, said that public service sometimes “requires standing firm in the face of threats”.
Mr Trump has long been seeking cheaper borrowing costs in the US economy through lower central bank interest rates.
The pace of Fed rate cuts has been slowed through its worries about trade war-linked inflation but it did impose three cuts last year as the labour market suffered.
The action action against Mr Powell emerged about two weeks before Trump’s effort to fire another Fed official, governor Lisa Cook, will be argued before the Supreme Court.
Financial analysts said the Trump-Powell row was adding to wider nerves over the potential for US intervention in Iran in the wake of the operation that led to the capture of Venezuela’s president.
Some money was taken off the table as US stock markets hovered around record levels, according to futures data which showed the tech heavy Nasdaq set to plunge by around 1% at the open.
