The criminal investigation into Federal Reserve Chair Jerome Powell, initiated by the Department of Justice, has become a source of increasing concern among Republican lawmakers and allies of former President Donald Trump. The inquiry, which was brought into the public spotlight recently, has already influenced Senate dynamics and elicited warnings regarding its potential impact on financial markets and monetary policy.
Senator Thom Tillis of North Carolina, a Republican member of the Senate Banking Committee, has declared his intention to oppose any Federal Reserve nominee put forward by the Trump administration until the ongoing legal matter involving Powell is fully resolved. This position carries considerable weight, given the slim partisan division in the Senate Banking Committee that could impede a nominee’s progress to a floor vote.
Complementing this stance, Senator John Kennedy from Louisiana criticized the investigation, describing the resulting public discord between the White House and the Federal Reserve as unnecessary. Kennedy expressed concerns that such governmental confrontation could lead to an increase in interest rates, countering the desired effect of potentially lowering borrowing costs. He characterized the investigation as counterproductive to stabilizing economic conditions.
Despite these reservations, Senate Majority Leader John Thune of South Dakota and House Speaker Mike Johnson of Louisiana have opted for a measured approach, advocating that the investigation be allowed to proceed without interference. This perspective reflects a willingness to let legal processes unfold even amidst political and economic sensitivities.
Adding another layer to the unfolding situation, reports from Axios revealed internal communications within the Trump administration. Treasury Secretary Scott Bessent reportedly advised former President Trump of the risks attached to the ongoing investigation, cautioning that it had "made a mess" and could have detrimental effects on financial markets. Further reports speculated that the push for a criminal probe may have involved Bill Pulte, Director of the Federal Housing Finance Agency (FHFA). However, Pulte denied any participation and indicated that questions regarding the matter were appropriately directed to the Department of Justice.
In public comments, former President Trump distanced himself from direct knowledge of the probe when interviewed by NBC News, asserting that he was unaware of the investigation. Nevertheless, Trump criticized Powell’s performance in his Federal Reserve role and in relation to construction matters, underscoring ongoing tensions.
The investigation itself emerges against a backdrop of strained relations between the Trump administration and the Federal Reserve. Chair Powell has openly rebuked the Department of Justice, accusing it of leveraging its grand jury subpoenas related to the Fed’s $2.5 billion headquarters renovation as pretexts intended to exert control over monetary policy. Economist Justin Wolfers has framed Powell’s public response as a battle to safeguard the independence of the Federal Reserve, dubbing the investigative efforts the "Department of Recriminations."
This conflict has struck a chord within financial markets, where investors are reassessing the Federal Reserve’s autonomy. Precious metals markets reacted notably on Monday, with gold and silver prices surging to record levels amid anxiety over the Fed’s independence. Meanwhile, former Fed Chair Janet Yellen described the probe as “chilling,” emphasizing that the market has legitimate reasons for concern.
The unfolding investigation and its political reverberations represent a critical juncture in the intersection of legal scrutiny, monetary policy, and political dynamics. With Federal Reserve nominations potentially impeded and market volatility rising, the situation remains fluid as stakeholders monitor the implications on both the governance of U.S. monetary policy and broader economic stability.