Trump administration probe of Fed's Powell draws pushback

Trump administration's opening of a criminal probe of Federal Reserve Chair Jerome Powell drew fire from the Fed chief, who called the move a "pretext" to win influence over interest rates, and condemnation from former Fed chiefs and key members of Trump's Republican Party.

The Justice Department's threat of indictment, ostensibly focused on comments Powell made to Congress about a building renovation project, also sent rates on longer-term U.S. Treasury bonds up. A rise in long-term borrowing costs could backfire against Trump's efforts to address broad concerns about "affordability."

The independence of central banks is considered a central tenet of robust economic policy, insulating monetary policymakers from short-term political considerations and allowing them to focus on longer-term efforts to keep prices relatively stable.

On Monday, former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan joined with former government economic policy leaders from both political parties in raising the alarm.

In a joint statement signed by Yellen, Bernanke and Greenspan, they said the criminal inquiry into Powell is an unprecedented attempt to use prosecutorial attacks to undermine the Fed's independence.

"The Federal Reserve's independence and the public's perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates," the statement said.

The statement warned of "highly negative consequences for inflation" and the functioning of their economies more broadly, and stressed the importance of the rule of law.

U.S. Republican Senator Thom Tillis, a member of the Senate Banking Committee that vets presidential nominees for the Fed, called the move a "huge mistake" on Sunday. He said he would oppose any Trump nominees to the Fed, including whoever is named to succeed Powell as central bank chief, "until this legal matter is fully resolved."

He was joined on Monday in condemning the development by fellow Banking Committee member Kevin Cramer and Senator Lisa Murkowski, who wrote 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 told Trump on Sunday that the investigation "made a mess" and could be bad for financial markets, Axios reported on Monday, citing two sources.

Still, plenty of Republicans did not come to Powell's defense, notably House Speaker Mike Johnson, who told reporters he'd let the process "play out."

Threats and ongoing pressure

Powell – who was nominated by Trump to lead the Fed in late 2017 and confirmed by the Senate to the position in early 2018 – will complete his term as Fed chief in May, but he is not obligated to leave its Washington-based Board of Governors until 2028. A number of analysts saw the latest move by the administration as adding to the chances that he will defiantly remain at the central bank.

The criminal indictment threat emerged about two weeks before Trump's effort to fire another Fed official, Governor Lisa Cook, will be argued before the Supreme Court.

Until now Powell had avoided public disagreement with the Trump administration, Republican lawmakers had been largely silent and investors had been warily watching as the sparring match between the White House and the Fed played out during Trump's second term.

Trump officials' latest salvo was revealed late on Sunday by Powell, who said the Fed had received subpoenas from the U.S. Justice Department last week pertaining to remarks he made to Congress last summer over cost overruns for a $2.5 billion building renovation project at the Fed's headquarters complex in Washington.

"On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment," Powell said. "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," he said.

"This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress' oversight role ... 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."

Trump told NBC News Sunday that he had no knowledge of the Justice Department's actions. "I don't know anything about it, but he's certainly not very good at the Fed, and he's not very good at building buildings," Trump said.

A Justice Department spokesperson declined to comment on the case but added: "The Attorney General has instructed her U.S. Attorneys to prioritize investigating any abuse of taxpayer dollars."

(With input from agencies)