The Trump administration’s decision to open a criminal investigation into Federal Reserve Chair Jerome Powell has ignited an extraordinary political and economic backlash, with former central bank leaders, senior economists and prominent Republican lawmakers warning that the move risks undermining the independence of the world’s most influential central bank.
The controversy erupted late Sunday after Powell disclosed that the Federal Reserve had received subpoenas from the US Justice Department, signalling the launch of a criminal probe linked to his testimony before Congress on cost overruns in a major renovation project at the Fed’s Washington headquarters. On Monday, Powell issued an unusually sharp public rebuke, calling the investigation a “pretext” designed to give the White House leverage over interest-rate policy.
According to two people familiar with the matter, the investigation was approved and initiated by Jeanine Pirro, the US Attorney for Washington and a close ally of President Donald Trump. One of the sources said neither Attorney General Pam Bondi nor Deputy Attorney General Todd Blanche was briefed before subpoenas were issued to the Fed last week.
Pirro defended the move in a statement posted on X, saying her office acted after the Federal Reserve failed to respond adequately to inquiries about ballooning costs in the US$2.5 billion renovation of two historic Fed buildings. “This office makes decisions based on the merits, nothing more and nothing less,” she said.
Financial markets reacted swiftly, if cautiously. Yields on longer-dated US Treasury bonds rose as investors assessed the implications of a potential erosion of Fed independence for inflation and monetary policy. Analysts warned that sustained increases in long-term borrowing costs could complicate Trump’s broader economic agenda, particularly his focus on lowering living costs for American households.
Central bank independence — especially in setting interest rates — is widely viewed as a cornerstone of economic stability, shielding monetary policy from short-term political pressure. Critics argue that weakening this principle could lead to higher inflation and financial volatility.
On Monday, an extraordinary group of former Federal Reserve chairs — Janet Yellen, Ben Bernanke and Alan Greenspan — joined former economic policymakers from both political parties in condemning the investigation. In a joint statement, they warned that politicising monetary policy resembled practices seen in countries with weaker institutions.
“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.
International concern also surfaced. Senior central bankers, including the heads of France’s and Canada’s central banks, publicly expressed support for Powell, underscoring fears that the dispute could reverberate beyond US borders.
Notably, criticism also poured in from within Trump’s own Republican Party. Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee, called the investigation a “huge mistake” and said he would block any Trump nominees to the Fed — including Powell’s eventual successor — until the legal issue is resolved.
Other Republican senators echoed that view. Kevin Cramer and Lisa Murkowski warned that the stakes were too high to ignore. “If the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer,” Murkowski wrote on X.
Even some of Powell’s frequent critics expressed doubts. Senator Cynthia Lummis said using a criminal statute appeared to be a “heavy lift” and added that she saw no evidence of criminal intent. Senator John Kennedy, another Banking Committee member, was more blunt, quipping: “We need this like we need a hole in the head.”
According to Axios, Treasury Secretary Scott Bessent privately told Trump on Sunday that the investigation had “made a mess” and could unsettle financial markets.
Despite the uproar, broader market reaction remained restrained. Gold prices hit a record high and the US dollar weakened, but major stock indexes closed at all-time highs, buoyed by gains in artificial intelligence stocks and strong performance from Walmart.
Evercore ISI analyst Krishna Guha said markets appeared reassured by the swift backlash in Congress and public support from former Fed and Treasury leaders. “That response has reinforced confidence that institutional guardrails remain in place,” he wrote.
Powell, who was nominated by Trump in 2017 and confirmed as Fed chair in early 2018, is scheduled to complete his term in May. However, he is not required to leave the Fed’s Board of Governors until 2028. Several analysts said the investigation may increase the likelihood that Powell remains at the central bank rather than stepping aside quietly.
The legal threat also comes weeks before the Supreme Court is set to hear arguments related to Trump’s attempt to remove another Fed official, Governor Lisa Cook — a case that could redefine the limits of presidential power over independent agencies.
Until now, Powell had largely avoided public confrontation with the White House, while Republican lawmakers remained mostly silent as tensions simmered during Trump’s second term. That dynamic appears to have shifted.
“I have deep respect for the rule of law and for accountability in our democracy,” Powell said. “But this unprecedented action should be seen in the broader context of the administration’s ongoing pressure for lower interest rates and greater control over the Federal Reserve.”
President Trump told NBC News he was unaware of the Justice Department’s actions. “I don’t know anything about it,” he said, while criticising Powell’s leadership and the renovation project.
Bill Stone, chief investment officer at Glenview Trust, described the episode as largely political theatre. “Pressure on the Fed is not new,” he said. “The US legal system tends to get these things right — and most investors probably believe that.”
As legal, political and economic forces collide, the standoff marks a pivotal moment for the Federal Reserve — and for the longstanding norms that have insulated US monetary policy from partisan influence.
