The Justice Department’s investigation into Powell sparked backlash and support for the Fed’s independence

WASHINGTON (AP) — The Trump administration’s criminal investigation into Federal Reserve Chairman Jerome Powell on Monday appeared to embolden defenders of the U.S. central bank that President Donald Trump wants to bring under his control.

The violent reaction reflected the greater stakes involved in competing over the fate of the Fed’s independence, the balance of power within the federal government, and the course of the US economy. Trump has long publicly railed against Powell for not lowering the Fed’s benchmark interest rates to his liking, but the prospect of a criminal indictment was a step too far for an institution with outsized influence on both inflation and the labor market.

Several Republican senators condemned the Justice Department’s Fed subpoenas, which Powell unveiled on Sunday, as a “pretext” to pressure him to cut interest rates as sharply as Trump has demanded. Powell also said the Justice Department threatened to file criminal charges over his June testimony before Congress about the cost and design elements of the building’s renovation.

A bipartisan group of former Fed chairs and top economists on Monday compared the Trump administration’s actions to moves taken in poorer countries. Some analysts said the muted financial market response reflected a widespread belief that Powell could succeed in fending off allegations that his description to lawmakers of the Fed’s $2.5 billion project was criminal.

“I think this is inappropriate, counterproductive, and will set back the president’s case,” said Jason Furman, a Harvard economist and former senior adviser to President Barack Obama. It could also unite the Fed’s rate-setting committee to support Powell, and mean “the next Fed chair will be under greater pressure to prove his independence.”

The subpoenas apply to renovation costs for the Federal Reserve’s buildings, including its marble-clad headquarters in Washington, D.C. It comes at an unusual moment when Trump was raising the prospect of announcing his nominee this month to succeed Powell as Fed chair, after Trump last summer downplayed the idea that the Fed’s renewal costs were a challengeable offense.

While Powell’s term as chair ends in May, he has a separate term as Fed governor until January 2028. Furman said Trump’s moves could increase the likelihood that Powell will remain on the Fed’s board of governors after his term ends in May in order to defend the Fed’s independence from politics in its interest rate decisions.

While a rate cut was already considered unlikely at the Fed’s next meeting in about two weeks, news of the Justice Department investigation likely means the Fed will avoid cuts at the next meeting in order to send a message that it cannot be exposed to policy pressure, economists said.

Powell quickly found a growing number of defenders among Senate Republicans, who would have the option of confirming Trump’s planned picks to head the Fed.

Sen. Thom Tillis, a North Carolina Republican who sits on the Senate Banking Committee, said late Sunday in response to the subpoenas that he would oppose any of the Trump administration’s nominees to the Fed, including to replace Powell.

“If there was any remaining doubt as to whether advisers within the Trump administration were actively pushing to end the Fed’s independence, there should be none now,” Tillis said.

Read more: Trump demands that the Federal Reserve take full control of the central bank from Fed Chairman Powell

Sen. Lisa Murkowski, a Republican from Alaska, supported Tillis’ approach on Monday.

“After speaking with Chairman Powell this morning, it is clear that the administration’s investigation is nothing more than an attempt at coercion,” Murkowski said. She voted against the White House’s nomination of Stephen Meiran to the Fed’s board in September, which was barely approved by a vote of 48 to 47. Meiran still serves as Trump’s chair of the White House Council of Economic Advisers, although he is on leave due to his position at the Fed.

Trump over the past year has sought to pressure Powell to get the Fed to cut benchmark interest rates — a move that reflects a fundamental division over whether inflation still poses any risk to the U.S. economy.

Powell maintains that inflation remains high in the wake of Trump’s tariffs and is moving cautiously, while Trump claims that inflation is no longer a concern and interest rates should be cut significantly.

“I carried out my duties without fear or political favor, focused solely on our mandate of price stability and maximum employment,” Powell said in a video Sunday night unveiling the subpoenas. “Public service sometimes requires standing firm in the face of threats.”

If Powell remains on the Council after his term ends in May, the Trump administration will be denied the opportunity to take another seat on the Council.

In several press conferences, Powell refused to answer questions about his plans.

Asked by reporters on Monday whether Powell intended to remain Fed governor, Kevin Hassett, director of the White House National Economic Council and the leading candidate to chair the Fed, said he was not aware of Powell’s plans.

“I haven’t talked to Jay about it,” Hassett said.

Powell, who has abandoned the cautious approach he has taken since Trump began attacking him last year for not cutting interest rates sharply enough, said on Sunday that the subpoenas were a “pretext” to force the Fed to cut its key short-term interest rate.

Sen. Kevin Cramer, R-North Dakota, a frequent critic of Powell, said Monday that he does not believe the Fed chief is a “criminal” and said he hopes “this criminal investigation can be concluded quickly,” according to CNBC.

The bipartisan group, which includes former Fed chairs and top economists, said in their letter Monday that the White House’s legal actions and the potential loss of the Fed’s independence.

“This is the way monetary policy is made in emerging markets with weak institutions, with very negative consequences for inflation and the functioning of their economies more broadly,” the statement said. “It has no place in the United States, whose greatest strength lies in the rule of law, which is the foundation of our economic success.”

The statement was signed by former Fed Chairs Ben Bernanke, Janet Yellen, and Alan Greenspan, as well as former Treasury Secretaries Henry Paulson and Robert Rubin.

However, Trump’s pressure campaign has been building for some time. The President has relentlessly criticized and belittled Powell, trying to blame him for some of the discontent with the economy that followed the President’s tariff announcements.

Trump appeared to review the shocking news regarding the subpoenas at a press conference on December 29. The president said his administration would “likely” sue Powell for “gross incompetence” regarding the cost of the renovations, calling it “the highest building price per square foot in the history of the world.”

“He’s just a very incompetent man,” Trump said. “But we’ll probably file a lawsuit against him.”