In what some consider the administration’s latest effort to exert greater influence on economic policy, the Justice Department has issued a criminal probe into Federal Reserve Chairman Jerome Powell, stemming from Powell’s comments to Congress last summer regarding the building renovation project at the Federal Reserve’s Washington headquarters.
President Trump has long expressed his dissatisfaction with the Federal Reserve, and Chairman Powell in particular, even threatening to relieve Powell of his position and publicly chastising him for not lowering interest rates more aggressively.
The U.S. central bank has long functioned with complete autonomy and with no accountability to the president or any other elected official. The independence of the central bank, at least in setting interest rates to control inflation, has long been considered a central pillar of robust economic policy, insulating Federal Reserve board members from outside or political pressure and ensuring they make the best decisions based on monetary policy and longer-term efforts to keep prices relatively stable.
Both lawmakers and former Federal Reserve chairs have spoken up in opposition to the probe and in defense of the central bank maintaining its independence from political influence.
Former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan expressed their concerns early in the week.
“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,” they wrote.
Global central bankers, including the chiefs of the French and Canadian central banks, publicly offered solidarity.
Republican Senator Thom Tillis called the move a “huge mistake” and, as a member of the Senate Banking Committee that vets future Fed nominees, vowed to oppose any Trump nominee to the Fed, including Powell’s future replacement, until any legal matter is fully resolved.
Those sentiments were echoed by fellow Republican Senators Kevin Cramer of North Dakota and Lisa Murkowski of Alaska, who posted on X that:
“The stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.”
Treasury Secretary Scott Bessent, a Trump ally and possible candidate for Powell’s replacement at the close of his term, reportedly told the president he “made a mess” with the criminal probe and that it could be bad for financial markets.
For the week, the Dow finished slightly down, dropping 83 points, or 0.17%, as once again gold hit an all-time high, topping $4,600 late in the week, while the Nasdaq inched down 0.06% as well. The S&P 500 rose slightly on Friday but still ended the week at a loss.
Powell’s comments last summer, surrounding a reported $2.5 billion renovation of the historic Federal Reserve headquarters in Washington, drew the ire of President Trump, culminating in a tense visit to the work site, where Trump openly sparred with the chairman about his reluctance to lower interest rates.
In a comment on social media about the renovation, Trump stated:
“It is what it is and, hopefully, it will be finished ASAP. The cost overruns are substantial but, on the positive side, our Country is doing very well and can afford just about anything.”
In the three Federal Reserve meetings in the fall, the central bank reduced the benchmark lending rate by 0.25% at each interval, lowering the baseline borrowing rate to 3.5%-3.75%.
Trump had been demanding much steeper cuts to facilitate greater economic growth, but the Fed proceeded cautiously, with the national inflation rate still near 3%, higher than the Fed’s preferred inflation rate of 2% and limiting the case for deeper rate cuts.
On Jan. 11, Powell went public with the fact that the Justice Department had issued subpoenas in advance of a possible criminal indictment related to the ongoing renovation project.
As the cost of the project has ballooned, some Trump allies have called for an investigation. Powell maintains it is just another example in a long history of the president trying to exert political influence over the autonomous and independent nature of the central bank.
Powell was nominated by Trump in 2017 and confirmed by the Senate in early 2018. His term as chairman ends in May, but he is not obligated to leave the Board of Governors until 2028, and given the administration’s latest move, the belief is that Powell will defiantly remain with the Board of Governors once his chairmanship expires.
Powell stated on Sunday that:
“I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law.”
“But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure” for lower interest rates and, more broadly, for greater say over the Fed, he said.
Given the pushback from Republican lawmakers, past chairpersons’ concerns and Wall Street’s shaky reaction, the ongoing sparring match between the Fed and the administration may be heading toward more tenuous ground.
As for Trump, he claimed aloofness regarding the Justice Department probe:
“I don’t know anything about it,” Trump said Sunday. “But he’s certainly not very good at the Fed, and he’s not very good at building buildings.”
