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The Federal Reserve’s Independence is in Danger

January 13, 2026
Lindsey Zhao

Until Federal Reserve (Fed) Chair Jerome Powell’s speech on Sunday, the public feud between him and President Donald Trump had remained mostly one-sided. Throughout the first year of his second term, Trump has pushed the Fed to continue cutting interest rates—a monetary policy tool that stimulates borrowing and short-term economic growth, but also risks unnecessary inflation if rates become too low. Last year, the Fed cut rates three times (amid rare internal dissent from the Board of Governors) to protect a weak labor market, but Trump has continued to demand further cuts.

Powell’s resistance to doing so, citing inflationary concerns and Fed independence, has earned him the ire of the president. He has called him “Mr. Too Late” and a numbskull, threatened to fire him (which he can’t legally do because of the Fed’s independence from the government), and further suggested he might sue Powell over his recent Senate testimony regarding Fed building renovations.

Unfortunately, the last comment has essentially become reality, and it could have serious repercussions for the Federal Reserve’s crucial independence and the wider American economy.

Last Friday, Trump’s Department of Justice made the controversial move to serve the Fed with subpoenas, launching a criminal investigation into Powell over his renovation testimony. Investigators allege that the Fed’s planned renovations to two historic buildings have abused taxpayer dollars and possibly committed fraud due to cost overruns (an initially $1.9B project has ballooned to $2.5B) from luxury features like new dining rooms and marble embellishments. However, Powell denied this in his Senate testimony last June, saying the latest proposal of the plan didn’t include any new expensive features and that the overrun was due to cost differences in estimated and anticipated material, equipment, and construction processes, like removing more asbestos than predicted.

Although Trump has said he didn’t know about the case, most people—including Powell himself—appear skeptical that he truly wasn’t involved. In an unlikely move for the normally reticent Governor, Powell gave a fiery speech Sunday denouncing the investigation as a part of Trump’s wider campaign to “[direct] monetary policy by political pressure or intimidation.”

“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.

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. 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.”

Fed Chair Jerome Powell—January 11, 2026

If Trump is truly behind the investigation, it would not be the first time he has leveraged DOJ investigations against his political opponents. In August 2025, he tried to fire Fed Governor Lisa Cook over allegations of mortgage fraud (Cook has denied wrongdoing). He has also directed the DOJ to investigate former FBI Director James Comey, NY Attorney General Letitia James, and Senator Adam Schiff over insufficient allegations of mortgage fraud.

While Democrats have predictably condemned the move, even Republicans are rattled because of how it sets a precedent for forcing the Fed to bow to the will of the US executive.

Retiring Senator Thom Tillis (R-NC), who has supported Trump on most issues in the past, has stated that he will not support any nominees to replace Powell until the case is fully resolved.
Senator Lisa Murkowski (R-AK) said the investigation was a form of coercion and warned of the economic consequences of the Fed losing its independence.
Senator John Kennedy (R-LA) has warned that the probe could make interest rates go up instead of down, making it harder to borrow money.
Powerful GOP Representative French Hill (R-AR, the House Financial Services Committee Chair) has called it an unnecessary distraction, a sentiment echoed by other Representatives.
Senate Majority Leader John Thune (R-SD) has cautioned that any investigation of Powell “better be real.”

The stakes are high: as a statement signed by every living former Fed chair states, similar political attacks on independent central banks have led to unstable economies and higher costs of living.

It is incredibly important for the Federal Reserve to remain independent from a politicized federal government. It needs to be able to make decisions regarding interest rates that can strike a balance between low, stable inflation and a strong job market (their “dual mandate”) without being influenced by partisan political agendas. However, Trump’s push for rock-bottom interest rates, even when the economy is performing well, risks increasing inflation and eroding public trust in the Federal Reserve’s independence, which in turn could increase long-term borrowing costs.

The announcement prompted declines in Treasury equities on Monday and may renew a “Sell America” sentiment, where investors will begin to prefer non-American assets due to the turbulency of the American economy (both from the Fed’s battle for independence and tariffs).

This case sets an important—and potentially dangerous—precedent that the Federal Reserve can face consequences from the president simply because he doesn’t like their policy choices. Whether you rely on borrowing to finance your student loans or afford your home, the implications of this case will reach beyond Wall Street and into your everyday financial decisions.