The independence of the U.S. Federal Reserve is currently facing significant scrutiny, marked by a criminal investigation into its Chair, Jerome Powell, and a Supreme Court challenge regarding the attempted removal of Governor Lisa Cook. These actions, originating from the Trump administration, have prompted widespread debate about the central bank's autonomy, drawing reactions from global financial leaders, U.S. policymakers, and financial markets. A nominee for the next Fed Chair also faces opposition amidst these ongoing controversies.
Criminal Investigation Targets Federal Reserve Chair Jerome Powell
On Sunday, January 12, 2026, Federal Reserve Chair Jerome Powell publicly announced that the U.S. Department of Justice (DOJ) had initiated a criminal investigation into him. Grand jury subpoenas were served to the central bank on the preceding Friday. The probe reportedly concerns testimony Powell provided to the Senate Banking Committee in June 2025 regarding a multi-year renovation project for the Federal Reserve's Washington, D.C. headquarters.
The renovation project's cost increased from an initial estimate of $1.9 billion to $2.5 billion. Powell cited factors such as inflation, unexpected asbestos removal, and improvements to electrical and ventilation systems for the cost overruns.
Powell characterized the investigation as a "pretext," asserting that the underlying motivation was the administration's desire for the Federal Reserve to lower interest rates.
He framed the situation as a challenge to the Fed's ability to set monetary policy based on economic conditions and evidence, rather than political pressure or intimidation. Powell affirmed his commitment to performing his duties without political bias, focusing on price stability and maximum employment.
Allies of President Trump, including Peter Navarro, Bill Pulte, and Russ Vought, have alleged mismanagement of the renovation project and accused Powell of making false statements under oath. The Federal Reserve has publicly provided information on the renovation's cost overruns and its collaborative efforts. The investigation is being overseen by the U.S. Attorney's Office for the District of Columbia, led by U.S. Attorney Jeanine Pirro. President Trump had initially denied knowledge of the investigation but later stated that the probe should "take it to the end and see."
Supreme Court Examines Attempted Removal of Governor Lisa Cook
Parallel to the criminal probe, the U.S. Supreme Court heard arguments on January 21, 2026, regarding President Donald Trump's attempt to remove Federal Reserve Governor Lisa Cook. Cook, a Biden appointee and one of three Democratic appointees on the seven-member board, was accused by the Trump administration of mortgage fraud, which she has denied.
Federal law stipulates that Fed governors can only be removed "for cause," a provision designed to protect the central bank's independence. Cook's legal team argued she was not afforded due process to contest the allegations.
Federal Reserve Chair Jerome Powell attended the Supreme Court arguments. Justices on the Court expressed skepticism about the administration's legal position, raising concerns about the potential implications for the Federal Reserve's independence.
Justice Brett Kavanaugh commented that allowing such a firing could "weaken, if not shatter, the independence of the Federal Reserve."
The Supreme Court had previously issued an order on October 1, 2025, allowing Cook to remain on the board while the case proceeds. The Court has distinguished the Federal Reserve as a "uniquely structured, quasi-private entity" with a distinct historical tradition, unlike other independent agencies where presidential dismissals have been permitted.
Administration's Broader Pressure on Monetary Policy
The criminal investigation into Powell and the attempted removal of Cook are viewed within the broader context of the Trump administration's consistent pressure on the Federal Reserve to lower interest rates. President Trump and his allies have repeatedly criticized Powell for the Fed's interest rate policies, advocating for lower rates to stimulate the economy, reduce government debt costs, and increase housing prices. He publicly expressed a desire for rates around 1%.
The Fed had reduced interest rates three times in the latter half of 2025, bringing the federal funds rate to approximately 3.6%. However, officials indicated that further immediate reductions were unlikely, and the Federal Open Market Committee (FOMC) recently maintained its policy rate unchanged despite calls for cuts. Two FOMC governors, Stephen Miran and Christopher Waller, dissented from the majority decision, advocating for a 25-basis-point cut.
Powell's term as Fed Chair concludes in May, but his term as a Fed governor extends until 2028. In November 2024, Powell stated he would not resign if requested by the President.
Domestic and International Reactions Underscore Importance of Independence
The actions against Powell and Cook have generated significant domestic and international concern, with a broad consensus supporting Federal Reserve independence.
International Support
Twelve central bank chiefs globally, including leaders from the European Central Bank, the Bank of England, and the Reserve Bank of Australia, issued a joint statement expressing solidarity with the Federal Reserve System and Chair Powell.
They affirmed that central bank independence is a "cornerstone of price, financial and economic stability" and commended Powell's "integrity" and "unwavering commitment to the public interest."
U.S. Economic Leaders
Thirteen prominent U.S. economic figures, including former Federal Reserve Chairs Alan Greenspan, Ben Bernanke, and Janet Yellen, and five former Treasury Secretaries, condemned the Justice Department's actions.
They called the probe an "unprecedented attempt to use prosecutorial attacks to undermine that independence," likening it to how monetary policy is conducted in "emerging markets with weak institutions."
Congressional Reactions
Several U.S. Senators across party lines voiced concerns. Senator Thom Tillis (R-NC) pledged to block future Trump administration nominees to the Federal Reserve until the legal situation involving Powell is resolved. Senator Lisa Murkowski (R-AK) described the investigation as an "attempt to intimidate, threaten and coerce." Senator Elizabeth Warren (D-MA) stated that Trump was attempting to "complete his corrupt takeover of our central bank."
Market Response
Financial markets showed a mixed response. While some viewed the legal actions as potentially positive for short-term interest rates, concerns were raised regarding the targeting of Powell. Long-term bond yields increased, indicating investor apprehension about potential inflation if political pressure were to lead to lower rates amidst rising U.S. debt. Gold and silver prices also saw increases following the announcement of the criminal probe.
The U.S. dollar has depreciated against major currencies, and global central banks are reportedly adding more gold than U.S. government debt to their reserves for the first time since 1996.
The Federal Reserve's Structure and Mandate
The Federal Reserve was established by Congress in 1913 to operate independently of the President and Congress. This structure is designed to insulate monetary policy from short-term political pressures, allowing decisions on interest rates to be made based on economic realities rather than political aims. Economists widely agree that a politicized central bank can negatively impact inflation and the cost of living, leading to economic instability.
The Fed's dual mandate is to achieve price stability and maximum employment. Interest rate decisions are made by the 12-member Federal Open Market Committee (FOMC), where the President appoints seven governors for staggered terms, but the Chair holds only one vote.
Nomination of Kevin Warsh for Federal Reserve Chair
President Trump has nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair when Powell's term concludes in May. Trump stated that Warsh "certainly wants to cut rates." Warsh has publicly articulated an objective to significantly reduce the Fed's balance sheet, believing that a smaller balance sheet would promote higher economic growth, lower inflation, and discourage excessive government spending. He was a member of the Fed's board during the initiation of quantitative easing (QE) after the 2008 financial crisis but became a critic of QE after leaving the board in 2011.
The nomination faces challenges in the Senate. Senate Democrats, led by Ranking Member Elizabeth Warren, have requested a delay in Warsh's nomination proceedings until the investigations involving Chair Powell and Governor Cook are resolved. Senator Thom Tillis's pledge to obstruct Trump's nominee if the Powell investigation is not discontinued could create a deadlock in the Senate Banking Committee, potentially preventing the nomination from advancing.
Broader Economic Context and Global Implications
These challenges to the Federal Reserve's independence occur amidst concerns about the substantial U.S. national debt, which stands at approximately $38 trillion with an annual increase of $3 trillion. Rising long-term bond yields reflect investor apprehension regarding the growing debt and potential inflationary pressures if monetary policy is perceived as politically influenced.
Internationally, there is a re-evaluation of the global financial order.
Mark Carney, former head of the Bank of Canada and Bank of England, stated that the "rules-based global order" is "fading."
China is actively pursuing the internationalization of its currency, the renminbi, perceiving an opportunity amidst perceived U.S. dollar vulnerability. While the U.S. dollar maintains dominance in global finance, a shift in investor sentiment and increased gold purchases by central banks suggest a diversification away from dollar-denominated assets. This situation underscores the interconnectedness of global finance and the potential for domestic policy decisions to have international repercussions.