As tensions rise between Trump and the Federal Reserve, certain analysts express concern over potential future developments

Main Insights

• Financial leaders, such as former Federal Reserve chairs and the head of the nation’s largest bank, caution that President Trump’s attempts to influence the central bank to reduce interest rates could have unintended negative consequences.

• They warn that undermining the Fed’s autonomy could drive up inflation expectations and push Treasury yields higher, which would affect borrowing costs throughout the economy.

President Donald Trump has repeatedly argued that interest rates remain too high, but many analysts believe his campaign to sway the Federal Reserve is unlikely to benefit him.

Although Trump and Fed Chair Jerome Powell have had a contentious public relationship, recent developments have heightened tensions. Over the weekend, Powell revealed that the Justice Department had launched a criminal inquiry into whether he misled Congress during testimony about the costs of renovating the Fed’s headquarters. Powell described the probe as politically motivated, stating it resulted from the Fed’s commitment to setting interest rates based on economic analysis rather than presidential preferences.

The White House has tried to pressure the Fed—which is designed to operate independently—to make aggressive rate cuts. While policymakers lowered rates gradually last year to support a slowing job market, they resisted calls for faster cuts due to concerns about fueling inflation. Most analysts anticipate some rate reductions this year, though likely fewer than Trump desires.

Inflation expectations in the markets edged up this week but did not surge, indicating investors do not expect the investigation to significantly impact interest rates. This lack of market reaction has surprised some, including former Fed Chair and Treasury Secretary Janet Yellen, who told CNBC she was “surprised the market isn’t more concerned.”

Economic Significance

The Federal Reserve’s ability to operate free from political interference is widely regarded as crucial for effective monetary policy, which sometimes requires making tough choices for long-term stability. According to some experts, President Trump’s efforts to assert control over the central bank could erode confidence in U.S. economic policy.

The outcome of the investigation remains uncertain, and several analysts speculate it could produce results contrary to what Trump intends.

Bernard Yaros, chief U.S. economist at Oxford Economics, wrote on Monday that the criminal investigation into Powell is unlikely to alter the Fed’s policy direction and might even have the opposite effect by making officials more hesitant to cut rates in the near future.

Additional Perspectives

JPMorgan Chase CEO Jamie Dimon commented that any action undermining the Fed’s independence is likely to backfire, raising inflation expectations and potentially causing interest rates to climb over time. Trump, however, dismissed Dimon’s concerns as incorrect.

All living former Fed chairs, along with a bipartisan group of 14 policymakers, have signed a statement warning that compromising the central bank’s independence would damage trust in U.S. monetary policy and disrupt both domestic and global financial systems.

The statement noted, “This approach to monetary policy is typical of countries with weak institutions, often resulting in severe inflation and broader economic dysfunction. Such practices are incompatible with the United States, whose economic strength is built on the rule of law.”

Many analysts believe the investigation has increased the likelihood that Powell will remain a Fed governor after his current term as chair ends in May. (Fed governors serve 14-year terms, while the chair serves for four years. By law, the chair is always a governor and may continue as a governor after their chairmanship concludes.) On the prediction market Kalshi, the probability of Powell leaving the Fed before August dropped sharply on Sunday but has since rebounded to about 66%.

Yaros points out that if Powell stays on the Board, it would limit the president’s ability to reshape the central bank, as the new chair would have to take the seat currently held by Governor Stephen Miran. Trump appointed Miran, a close White House advisor, last year to fill the remainder of Governor Ariana Kugler’s term, which ends January 31.

Yaros also suggests that investors could act as a check on political interference in monetary policy. In the short term, any loss of confidence in the Fed could trigger a sell-off in Treasurys, pushing yields— which affect a wide range of interest rates—sharply higher. (Bond yields have actually declined this week.)

Over the longer term, economic models indicate that politically driven rate cuts might temporarily boost growth but would also fuel inflation and push market interest rates higher, leaving future Fed policymakers with limited options to bring inflation back under control, according to Yaros.

Yaros believes that an upcoming Supreme Court decision may have a greater impact on the Fed’s independence than the Powell investigation. The Court is set to hear arguments next week on whether Trump has the authority to remove Fed Governor Lisa Cook, whom he tried to dismiss last year over disputed mortgage fraud allegations.

“If the Court rules against Cook, it could allow current and future presidents to reshape the central bank’s leadership,” Yaros said.