Every living former head of the Federal Reserve, including Alan Greenspan, Ben Bernanke, and Janet Yellen, has strongly condemned what they describe as an “unprecedented” attempt by the Trump administration to undermine the independence of the US central bank. This outcry follows the Department of Justice's opening of a criminal investigation into current Fed chair, Jerome Powell. The ex-Fed chairs warned that similar prosecutorial attacks in other countries have resulted in “highly negative consequences” for the cost of living and assert that such actions have “no place” in the United States.

The controversy escalated after the Justice Department served the Fed with grand jury subpoenas on a Friday, threatening a criminal indictment against Powell. This indictment is reportedly linked to Powell’s testimony before the Senate banking committee in June of the previous year concerning renovations to the Fed’s historic office buildings in Washington DC. In response, Powell stated that he believes he is being threatened with criminal charges because the Fed has been setting interest rates “based on our best assessment of what will serve the public, rather than following the preferences of the president.”

This move marks a significant escalation in Donald Trump’s ongoing campaign against the Fed’s independence. The US president has repeatedly criticized Powell and the central bank for not acceding to his demands for rapid interest rate cuts, aggressively seeking to exert greater control over the Fed's decisions. Despite these actions, Trump claimed to NBC News that he was unaware of the investigation, stating, “I don’t know anything about it.” The Justice Department has not yet commented on the matter.

Several prominent Republicans expressed their disapproval of the department's actions. Thom Tillis of North Carolina, a member of the Senate banking committee, declared his opposition to any new nominee for the central bank until the legal matter is fully resolved. Kevin Cramer of North Dakota, another committee member, also called for a swift end to the investigation.

Former Fed officials and policymakers echoed these concerns, warning that such actions could severely damage the US economy. A blunt statement signed by 13 former senior officials, including Greenspan, Bernanke, and Yellen, described the inquiry into Chair Powell as an “unprecedented attempt to use prosecutorial attacks to undermine that independence.” They emphasized that such practices are characteristic of “emerging markets with weak institutions,” leading to negative consequences for inflation and overall economic functioning, and are incompatible with the rule of law foundational to the US economic success.

Economists have also cautioned that Trump’s attempts to influence the Fed risk plunging the US into a period reminiscent of 1970s-style inflation and could trigger a global backlash in financial markets. Analysts drew parallels to a historical instance where price growth surged after then-President Richard Nixon pressured Fed chair Arthur Burns to ease monetary policy to aid his 1972 election campaign. Despite these warnings, Wall Street remained relatively calm on Monday, with the S&P 500 flat and the Nasdaq Composite slightly up.

Allies of Trump had spent months prior accusing the Fed of mismanaging multibillion-dollar renovations, with Trump repeatedly threatening legal action. However, Powell insisted that the current legal threat is “not about” his testimony or congressional oversight, but rather “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.”

Powell, initially appointed by Trump and reappointed by Biden, has chaired the Fed since 2018, with his term as chair expiring in May. While a successor chosen by Trump could take his place, Powell can remain on the Fed’s board of governors until 2028. Kevin Hassett, a senior White House official and director of the National Economic Council, is considered a frontrunner to succeed Powell. Trump, when asked about Hassett, described him as “certainly one of the people that I like.”

When questioned about the Justice Department’s investigation, Hassett claimed to respect the Fed’s independence but supported the inquiry into building costs. He stated, “I guess the question is, if you think the building cost $20bn, or $10bn, do you think at some point that it’s appropriate for the federal government to investigate? And seems like the justice department has decided that they want to see what’s going on over there.” He added that as Fed chair, he would want such an investigation, emphasizing the importance of understanding how taxpayer money is spent.