WASHINGTON, D.C., January 13 — The Trump administration escalated its pressure campaign against the Federal Reserve, threatening Chair Jerome Powell with a criminal indictment. Powell denounced the Justice Department probe as a “pretext” to influence interest rates, drawing condemnation from former Fed leaders and key Republican lawmakers and sending tremors through financial markets.
What is the criminal investigation about?
The U.S. Justice Department served the Federal Reserve with grand jury subpoenas last week. The probe ostensibly focuses on comments Powell made to the Senate Banking Committee in June about cost overruns in a $2.5 billion renovation of the Fed’s Washington headquarters. Powell stated the subpoenas threaten a criminal indictment related to that testimony.
How did Jerome Powell respond?
Chair Powell issued a pointed public response, stating he respects the rule of law but called the action “unprecedented.” He directly linked it to political pressure, saying, “This new threat is not about my testimony… Those are 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.”
What has been the political reaction?
The move has sparked bipartisan alarm among economic leaders and fractured Trump’s own party.
Republican Senators: Banking Committee member Thom Tillis called it a “huge mistake” and vowed to oppose any Trump Fed nominees until the matter is resolved. He was joined by Senators Kevin Cramer and Lisa Murkowski, who warned that lost Fed independence would harm economic stability.
Former Officials: Former Fed Chairs Janet Yellen, Ben Bernanke, and Alan Greenspan joined former economic leaders from both parties in a statement, warning such actions belong in “emerging markets with weak institutions” and have “no place in the United States.”
How have financial markets reacted?
Investors immediately parsed the risks of a politically compromised Federal Reserve.
Bonds & Dollar: Longer-term U.S. Treasury bond yields rose, and the dollar fell.
Gold: The price of gold hit a record high as a safe-haven asset.
Stocks: Major U.S. stock indexes opened lower, with bank stocks under additional pressure from a separate Trump proposal to cap credit card interest rates.
Why is Federal Reserve independence important?
Central bank independence is a cornerstone of modern economic policy, designed to insulate interest-rate decisions from short-term political pressures.
This allows policymakers to focus on long-term price stability. Analysts fear undermining this principle could lead to higher inflation and economic volatility.Analysts worry that if this premise is compromised, inflation and economic volatility may increase. Goldman Sachs’ chief economist noted the news has “reinforced” concerns that “Fed independence is going to be under the gun.”
What happens next for Jerome Powell?
Powell’s term as Chair ends in May, but his term as a Fed Governor extends to 2028. This escalating conflict makes his departure less certain; some analysts believe it increases the chance he defies pressure and remains on the Board. The threat emerges two weeks before the Supreme Court hears arguments on Trump’s separate effort to fire Fed Governor Lisa Cook.
FAQ: The Fed Indictment Threat
Q: What is Jerome Powell accused of?
A: The Justice Department subpoena focuses on his Congressional testimony about cost overruns for a Fed building renovation project. Powell and critics allege this is a pretextual charge.
Q: How has Donald Trump responded?
A: Trump told NBC News he had “no knowledge” of the DOJ’s actions but criticized Powell, saying, “he’s certainly not very good at the Fed, and he’s not very good at building buildings.”
Q: Could this affect interest rates?
A: Indirectly, yes. Market-driven long-term borrowing costs have already risen on the news. If the Fed’s perceived independence is eroded, it could ultimately influence monetary policy, inflation expectations, and economic stability.
