Jerome Powell makes clear Fed’s independence under threat after criminal probe

Monday, 12 January 2026

Jerome Powell: “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation”.

The chair of the United States Federal Reserve, Jerome Powell, has made clear he believes the bank’s independence is under threat following a criminal probe by the US Department of Justice.

Federal prosecutors have opened an investigation into testimony Powell provided to the US Senate in regard to US$2.5 billion of renovations carried out at the Federal Reserve’s headquarters in Washington.

But Powell said the probe was not really about his testimony on the renovations and was instead “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 Donald Trump.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” he said, describing his testimony to the Senate as a “pretext” for the criminal investigation.

The move by the Department of Justice is widely believed to be politically-motivated and linked to pressure from Trump, who has criticised Powell for being “slow” to reduce interest rates.

Trump has made no secret of wanting to remove Powell as chairperson of the central bank after his term expires in May, with leading contenders believed to be former Governor Kevin Warsh and Kevin Hassett, the current director of the National Economic Council.

But Powell’s statement nevertheless sent a shock wave through the global financial system.

Threats to the independence of central banks by governments are usually associated with fears that monetary policy will be loosened and inflation will rise as a consequence.

The US dollar fell in value by about a third of a Euro cent and the New Zealand dollar rose about a fifth of a US cent, following the developments.

Last year, stock markets largely ignored Trump’s attempts to pressure the Fed as the central bank went on anyway to cut rates three times as inflation stabilised.

But stock futures fell today after the criminal investigation came to light. Futures on the Dow Jones Industrial Average dipped 199 points. S&P 500 futures shed 0.5% and Nasdaq-100 futures lost 0.7%.

Justice Department spokesperson Chad Gilmartin declined to comment on the investigation, but said in a statement to CNN that the attorney-general wanted to “prioritise investigating any abuse of tax payer dollars.”