Powell under criminal investigation, sparking international concern over independence of US Fed and turbulence in dollar markets

Editor's note: Xu Deshun is a research fellow at the Chinese Academy of International Trade and Economic Cooperation. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

US Federal Reserve Chair Jerome Powell has been the subject of a criminal investigation recently, sparking controversy in the United States and across the globe. Although US President Donald Trump has denied any involvement in the Department of Justice's issuance of a subpoena to the Federal Reserve, stating that he doesn't "know anything about it," Powell himself has argued that the allegations amount to "pretexts." He has explained that the investigation is actually the consequence of the Fed's refusal to set interest rates "following the preferences of the President." More than a dozen former senior figures from the US financial and economic community issued a joint statement criticizing the Trump administration's criminal investigation of Powell as, in essence, an attempt to use prosecutorial pressure to weaken the independence of the Federal Reserve. The president of the European Central Bank, along with central bank governors of the United Kingdom, Sweden, Denmark, Switzerland, Australia, Canada, Republic of Korea, and Brazil, also released a joint statement declaring "full solidarity with the Federal Reserve System and its Chair Jerome H. Powell."

The criminal investigation into Powell has sparked international concern over the independence of the US Federal Reserve. This criminal investigation is by no means an ordinary personal case or dispute. Rather, it suggests that Powell is likely facing political persecution, an instance of charges being imposed to serve a predetermined outcome. Trump has repeatedly and openly expressed dissatisfaction with the pace of interest rate cuts under Powell's leadership of the Federal Reserve. Despite three rate cuts in 2025, Trump has continued to call Powell "a lousy Fed chairman," arguing that the most recent rate cut on December 10, 2025 could have been twice as large. In Trump's view, Powell has become an obstacle, someone unwilling to follow presidential directives, thereby impeding both Trump's strategic objective of "making America great again" and his more immediate goals of stimulating economic growth and reducing government borrowing costs. This has raised suspicions that Trump supporters may be exploiting political maneuvering and legal loopholes to attack and frame Powell, forcing both him and the Federal Reserve into compliance. Beneath this surface controversy lies a deeper power struggle within contemporary US politics. It cannot be ruled out that the incumbent US administration, driven by partisan interests and short-term governing objectives, is attempting to weaken the Federal Reserve's independence and challenge the core mandates conferred upon it by the 1913 Federal Reserve Act, including maintaining stable prices, promoting maximum employment, and safeguarding financial system stability. Against the backdrop of US inflation and employment realities, Powell and the Federal Reserve's cautious approach to rate cuts is justifiable.

The criminal investigation has also raised concerns about turbulence in dollar markets. If independence of the Federal Reserve were to be compromised, the credibility of the US dollar would be the first casualty, and the creditworthiness of US Treasuries would then suffer, thereby impairing their role as global safe-haven assets. Second, aggressive rate cuts could fuel rising inflation expectations in the United States, undermining the stability of the dollar's value. Sharp fluctuations in the dollar exchange rate could trigger large-scale adjustments in global foreign-exchange reserve allocations, potentially leading to a temporary surge in demand for non-dollar assets. Third, within the current international monetary system, where the dollar remains the dominant currency, the rhythm of global cross-border capital flows would be disrupted, volatility in stock and bond markets would soar, and global financial markets would become increasingly turbulent. Finally, this situation calls for accelerating reforms of the international monetary system toward a more equitable and rational structure so as to mitigate the effects that fluctuations in a single sovereign credit currency (the US dollar) and its central bank (the Federal Reserve) can exert on the stability and healthy development of the global financial, economic, and even social systems.