The Justice Department has threatened the Federal Reserve with a criminal accusation tied to testimony delivered by Fed Chair Jerome Powell this summer, the Associated Press reported Jan. 12. The threat was presented as part of a broader escalation by the Trump administration aimed at increasing control over the Fed’s independence.
The AP report said the administration’s pressure on Powell has built over time. It described how President Donald Trump has repeatedly attacked Powell for not cutting the Fed’s short-term interest rate, threatened to fire him, and pressed for rate cuts that would, in Trump’s view, both stimulate the economy and reduce the interest costs the federal government pays on its debt. The report also said the Fed cut rates in three of the last four months of 2025, without easing the president’s anger.
The report also described Trump’s criticism of how the Fed handled a headquarters renovation valued at $2.5 billion, and said Trump accused Powell of mismanaging the project. In a departure from Powell’s prior responses, the AP reported that Powell described the threat of criminal charges as simple “pretexts” to undermine the Fed’s independence as it relates to setting interest rates.
Even as Republican lawmakers have offered limited response, the report said early cracks have appeared within the party. Sen. Thom Tillis of North Carolina, who serves on the Senate Banking Committee that oversees Fed nominations, said, “If quedaba alguna duda de que los asesores dentro de la Administración Trump están activamente presionando para terminar con la independencia de la Reserva Federal, ahora no debería haber ninguna”. The report characterized his comments as signaling concern that advisers in the Trump administration were actively pushing to end the Fed’s independence.
The AP report also said Trump is looking to fire Lisa Cook, one of the Fed’s governors, over unproven accusations related to mortgage fraud. It said the accusation was made during the summer by Bill Pulte, a Trump appointee for the Federal Housing Administration.
The Fed exercises broad influence over the economy through the short-term interest rate it controls, the AP said. The report described how lowering that rate typically makes borrowing cheaper and can encourage spending, while raising the rate can cool the economy and contribute to job losses.
The importance of an independent central bank, the report said, has long appealed to many economists because independence can enable actions that are unpopular politically when inflation is high. The AP cited the view that the Fed’s independence became more firmly established in the aftermath of the prolonged inflation of the 1970s and early 1980s, including the account that Arthur Burns allowed inflation during the period when President Richard Nixon was seeking to keep rates low ahead of the 1972 election.
The AP report described Paul Volcker’s appointment as Fed chair in 1979 and said he raised the Fed’s short-term rate to nearly 20%, which the report said was followed by a deep recession and unemployment near 11%, along with widespread protests. It said Volcker did not yield and that by the mid-1980s inflation had fallen to low single digits—an outcome the report described as a key example of the value of a truly independent Fed.
The AP report said investors were watching closely, warning that efforts to remove Powell almost certainly would affect financial markets. It said firing Powell would likely push stock prices lower and bond yields higher, raising interest rates on government debt and increasing borrowing costs for mortgages, auto loans, and credit cards. The report said the 10-year Treasury yield is a reference point for mortgage rates.
It also said markets moved the day the report was published: U.S. markets fell at the opening bell Monday, bond yields rose, and the dollar weakened. It added that investors generally prefer an independent Fed not only because it may manage inflation better without political influence, but also because its decisions are more predictable—an emphasis the report linked to Fed officials’ public discussions about how they might adjust rate policy as economic conditions change.
The AP report said the Fed’s independence is not absolute. It described how Fed directors are appointed by the president for four-year terms and require Senate confirmation, and how the president appoints the other members of the board of governors for staggered terms up to 14 years. It said those appointments can allow a president over time to significantly alter Fed policy.
In describing recent Fed membership changes, the report said Joe Biden named four of seven current members—Powell, Cook, Philip Jefferson, and Michael Barr—and said an additional Biden appointee, Adriana Kugler, resigned unexpectedly in August about five months before her term ended. The AP report said Trump has nominated Stephen Miran, described as the president’s chief economist, as a possible replacement, which would require Senate approval. It also said Cook’s term runs through 2038, so forcing her out would allow Trump to name a replacement earlier than her term end date.
The report said Trump could replace Powell as chair in May when Powell’s term expires, but added that the Fed’s interest-rate-setting committee includes 12 voting members. It said that means replacing the chair alone does not ensure the Fed would change rates in the way Trump wants. It said Congress also can set the Fed’s goals through legislation, including the 1977 “dual mandate” for stable prices and maximum employment, with the report adding that the Fed defines stable prices as 2% inflation. The AP also said the 1977 law requires the Fed chair to testify twice a year before the House and Senate.
On whether Trump could fire Powell before his term ends, the report said the Supreme Court suggested last year, in a ruling involving other independent agencies, that a president cannot fire a Fed director solely because of disagreement with decisions. It said the Court left room for removal “for cause,” typically interpreted as misconduct or negligence. The AP report said the Trump administration’s focus on the Fed headquarters renovation is likely aimed at providing a “for cause” pretext, but added that Powell would likely fight removal and that any dispute could ultimately reach the Supreme Court.
This story was translated from English by an AP editor with help from generative AI.