‘A reckless decision’: Trump’s surprising conflict with Powell may seriously backfire

Federal Reserve Faces Unprecedented Pressure Amid Trump Administration Actions

President Donald Trump is pushing for significant interest rate reductions, a surging stock market, and for his chosen Federal Reserve chair to step aside. However, the administration’s extraordinary move to launch a criminal investigation into Jerome Powell, the current Fed chair, is unlikely to deliver these results.

This dramatic escalation in the ongoing conflict between Trump and Powell could have unintended consequences. Instead of speeding up rate cuts, it may actually postpone them, unsettle financial markets, and potentially encourage Powell to remain in his role beyond his current term, which ends in May.

The Justice Department’s threat to bring criminal charges against Powell could also complicate Trump’s efforts to install a more loyal successor.

“This is lawfare at its worst,” said Richard Fisher, former president of the Dallas Fed, in a phone interview with CNN. “It’s hard to believe they would go this far. This crosses a line.” Fisher, who serves on the board of Warner Bros. Discovery, CNN’s parent company, added that he’s unsure what Trump hopes to achieve with this investigation, aside from retribution.

‘Trump Isn’t Going to Win’

Many observers believe a significant boundary has been breached. Previously, to avoid alarming business leaders and investors, the Trump administration refrained from directly targeting Powell, opting instead for public criticism. The latest developments, however, have rattled investors, briefly reviving the “sell America” trend that began with Trump’s tariff increases last year.

On Monday morning, U.S. stocks and the dollar dipped slightly. The most notable reaction was in precious metals: gold soared 3% to a new record above $4,600, while silver jumped 8%, continuing its strong performance from the previous year.

Economists have voiced concerns that the Justice Department’s investigation directly threatens the Federal Reserve’s independence, which is intended to shield monetary policy from political influence. “Trying to criminalize monetary policy decisions is outrageous,” said Justin Wolfers, an economics professor at the University of Michigan. “Every American should oppose this. It’s bad economics, bad politics, bad for the rule of law, and bad for markets.”

Tim Mahedy, a former San Francisco Fed official, believes Trump is sending a warning to current and future Fed leaders who might resist his push for lower rates. “Trump isn’t going to win this,” said Mahedy, now CEO and chief economist at Access Macro. “Powell isn’t easily intimidated. There won’t be a rate cut in January.”

Chances of a Rate Cut Remain Low

According to the CME FedWatch Tool, markets currently assign only a 5% probability to a rate cut at the Fed’s next meeting in late January, a figure that has barely changed from the previous day and is down from 17% a week earlier.

“This is an outrageous act which, from any other president, would be shocking,” said Alan Blinder, former Fed vice chair, in an email to CNN. “Fortunately, the Fed and its chair, Jerome Powell, are not easily intimidated.”

Experts say Trump’s attacks could make Fed officials hesitant to support a rate cut, fearing it would appear as if they were yielding to political pressure. “Overall, this undermines the president’s goals and may force the FOMC to take a tougher stance to demonstrate their independence,” Mahedy explained.

On Monday, every living former Fed chair, along with a bipartisan group of former Treasury secretaries and White House economists, released a statement defending Powell and condemning the “unprecedented attempt to use legal threats to undermine” the Fed’s autonomy, comparing the situation to those seen in emerging markets.

The White House has attempted to distance Trump from the Justice Department’s investigation. Press Secretary Karoline Leavitt told reporters that Trump did not instruct the DOJ to pursue Powell, despite the president’s history of publicly insulting him.

Powell May Stay at the Fed

Trump’s campaign to remove Powell could actually have the opposite effect. While Powell’s term as chair ends in May, he could legally remain on the board of governors until January 2028.

Powell has been noncommittal about his future plans, leaving open the possibility of staying on and maintaining a strong voice for the Fed’s independence. When asked by CNN in December about his intentions, Powell replied, “I’m focused on my remaining time as chair. I have nothing new to share on that front.”

Interestingly, as of last week, prediction markets gave Powell an 85% chance of leaving the Fed before August. After news of the criminal investigation broke, those odds dropped to just 55%, suggesting the market now expects Powell to stay—contrary to Trump’s wishes.

“This seems like a deeply misguided and foolish move,” said Douglas Holtz-Eakin, president of the American Action Forum. “It’s really unwise.”

Confirmation Battle Looms

Trump may soon announce his nominee to succeed Powell, with names like former Fed Governor Kevin Warsh and White House economist Kevin Hassett reportedly under consideration. However, any nominee must be confirmed by the Senate, and the investigation into Powell has already made that process more difficult.

Shortly after Powell’s video statement on Sunday, Republican Senator Thom Tillis stated on social media that the subpoena should remove “any remaining doubt” that Trump officials are “actively pushing to end the independence of the Fed.” Tillis, a member of the Senate Banking Committee, pledged to oppose any Fed nominee until the legal issues surrounding Powell are resolved.

Senator Lisa Murkowski of Alaska also backed Tillis, describing the administration’s actions as “nothing more than an attempt at coercion.” If more Republicans join them, Trump’s efforts to replace Powell could face significant delays or even fail entirely.