Facing unprecedented political pressure and threats of criminal investigation, Federal Reserve Chairman Jerome Powell, with only a few months left in his term, chose to publicly advise his successor to "stay away from politics." A battle to defend the independence of the U.S. central bank has entered a heated stage.
On January 28, local time, Federal Reserve Chairman Powell clearly stated at a press conference that he recommends the next Federal Reserve Chairman to "draw a clear line" with American politics. Just a day earlier, former President Trump publicly criticized Powell again, calling him a "terrible Federal Reserve Chairman" and stating that he would soon announce a new nominee for the Federal Reserve Chairman.
1. Escalation of Conflict and Investigation Initiation
● The Trump administration's pressure on Powell has escalated from verbal criticism to judicial action. On January 11, Powell issued a public statement through the Federal Reserve's website, confirming that he is under criminal investigation by the U.S. Attorney's Office for the District of Columbia.
● The investigation involves the renovation project of the Federal Reserve's Washington headquarters and Powell's testimony before the Senate Banking Committee in June 2025. The U.S. Department of Justice issued a subpoena to the Federal Reserve on January 9, threatening to bring criminal charges against him.
● Powell candidly pointed out that this criminal investigation is occurring against the backdrop of "government threats and ongoing pressure." He emphasized that the U.S. government's threat of criminal charges against him is because the Federal Reserve sets interest rates based on the best assessment of public interest, rather than following the president's wishes.
2. Powell's Stance and Defense
● In response to the Trump administration's accusations, Powell provided a written explanation of the necessity of the Federal Reserve headquarters renovation. He emphasized that there are serious structural aging issues with the Federal Reserve headquarters and its annex, requiring the replacement of materials containing asbestos and lead, as well as a comprehensive update of electrical, heating, and fire protection systems.
● Since the project was approved in 2017, it has been under strict supervision. The Federal Reserve has rarely defended its $2.5 billion headquarters renovation project through a newly added "Frequently Asked Questions" page on its official website.
● The Federal Reserve clarified: "No new VIP restaurant is being built in the project," and explained issues related to elevators and water features. The renovation costs are not borne by taxpayers but are funded through interest income from securities held and fees charged to banks.
3. Pause on Rate Cuts and Policy Stance
● In the latest interest rate decision on January 28, the Federal Reserve decided to maintain the federal funds rate target range at 3.50% to 3.75%, pausing the consecutive rate cuts that began in September 2025.
● Two Federal Reserve governors appointed by Trump advocated for a 25 basis point rate cut at this meeting but ultimately did not gain majority support.
● Powell stated at the press conference that the current monetary policy stance is close to the "upper end of the neutral range" and emphasized that "there is no predetermined path for policy." He revealed that price pressures driven by tariffs are expected to peak around mid-2026 and gradually dissipate thereafter.
4. Trump's Continued Pressure and Potential Successors
● Since April 2025, Trump has publicly criticized Powell over ten times on his personal social media account. He even personally wrote on a displayed global central bank interest rate chart: "Jerome, you are always 'too late'!"
● Trump has repeatedly expressed a desire for the Federal Reserve to lower the benchmark interest rate to around 1% to reduce federal borrowing costs. He calculated that if rates were cut by three percentage points, the U.S. could save over a trillion dollars.
● Regarding the next Federal Reserve Chairman candidate, Trump stated in July 2025 that there are "two or three candidates," with potential nominees including former Federal Reserve governor Kevin Warsh and White House National Economic Council Director Kevin Hassett. Treasury Secretary Scott Basset stated on January 28 that Trump's nominee for Federal Reserve Chairman could be announced in about a week.
5. Rare Support from Global Central Banks and Market Reaction
In response to Powell's criminal investigation, the heads of major global central banks issued a joint statement on January 13, expressing support for the Federal Reserve Chairman who is under significant pressure from the Trump administration.
● The joint support from central bank leaders of multiple countries is indeed rare, with the statement emphasizing that "maintaining the independence of central banks is crucial." Former Treasury Secretaries and former chairs of the White House Council of Economic Advisers also participated in signing the statement.
● The market reacted strongly to the political pressure on the Federal Reserve. Deutsche Bank warned that the risk of Powell being dismissed is a "significant and underestimated risk," which could lead to a 3% to 4% drop in the dollar and a 30 to 40 basis point sell-off in bonds.
● Following the announcement, spot gold hit a new historical high, with fluctuations exceeding $60; the futures market priced in approximately 46 basis points of rate cuts for the entire year of 2026, with a 60% probability of a rate cut in June.
The renovation project of the Federal Reserve building has become the focal point of the struggle between Powell and the Trump administration. Trump personally visited the Federal Reserve to inspect what he called a "luxurious waste" construction project, while Powell insisted that the project is aimed at addressing "serious structural aging issues."
With only four months left in Powell's term, each of his public statements is seen as a final defense of the Federal Reserve's independence. He recently stated in oral arguments at the Supreme Court that the case being heard could be the "most important legal case in the 113-year history of the Federal Reserve."
Market analysts generally believe that unless the labor market deteriorates significantly, the next rate cut may be delayed until after Powell's term ends. This soon-to-be-former Federal Reserve Chairman is defending the last line of independence for modern democratic institutions' central banks by adhering to professional judgment.
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