Trump Admin Sparks Firestorm by Investigating Fed Chair Powell

Powell took the unusual step of releasing a video message.
Federal Reserve
By Yuval Rosenberg and Michael Rainey

Happy Monday! President Trump is scheduled to deliver an address at the Detroit Economic Club tomorrow as he looks to shore up sliding approval ratings for his handling of the economy. But his administration continues to upend the longstanding economic order in various ways. The latest example: opening a criminal investigation into Federal Reserve Chair Jerome Powell. News of the probe roiled official Washington and drew a sharp response from the normally reserved Fed chief - along with his predecessors at the bank and a number of key lawmakers. Here's what you should know.

Trump Admin Sparks Firestorm by Investigating Fed Chair

The Justice Department is investigating Federal Reserve Chair Jerome Powell for possibly lying under oath during testimony before Congress, ratcheting up President Trump's long-running attacks on the Fed chief in an unprecedented move that quickly drew fierce pushback from Powell and others.

Although Trump has denied any involvement in the investigation - it was reportedly approved by U.S. Attorney for the District of Columbia Jeanine Pirro, a former judge and Fox News host who has long been a Trump ally - the news comes as the president continues to pressure Powell to heed his advice on interest rate policy. Using a steady stream of insult and invective, Trump has repeatedly called on Powell to slash the Fed's benchmark interest rate in the hope of boosting economic growth. Powell has resisted as Fed officials trimmed rates while leaving them well above the level the president has demanded.

In an extraordinary video released Sunday evening, Powell said the Fed received subpoenas on Friday, "threatening a criminal indictment related to my testimony before the Senate Banking Committee last June" - testimony that included discussion of significant cost overruns and delays during the ongoing, multi-year renovations of the Fed's 90-year-old headquarters. But Powell said the investigation is really about something else.

"This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings," Powell said. "It is not about Congress's oversight role ... Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."

Powell added that the conflict could determine whether the central bank will be able to continue setting rate policy "based on evidence and economic conditions" or will be forced to defer to "political pressure or intimidation."

Lawmakers speak out: Both Democrats and Republicans rushed to defend the Fed, with key senators in both parties warning that they may not approve any Trump pick to succeed Powell, whose term ends in May, until this issue is settled. Trump has been discussing potential candidates to replace Powell, including National Economic Council director Kevin Hassett and former Fed governor Kevin Warsh.

Republican Sen. Thom Tillis, who sits on the Banking Committee, which oversees the Fed, said the investigation raises more questions about the Trump Justice Department. "If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none," he said. "It is now the independence and credibility of the Department of Justice that are in question."

Tillis added that he would oppose making any new confirmations for the Fed "until this legal matter is fully resolved."

Republican Sen. Lisa Murkowski echoed Tillis's comments. "After speaking with Chair Powell this morning, it's clear the administration's investigation is nothing more than an attempt at coercion," she said Monday. "If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns-which are not unusual-then Congress needs to investigate the Department of Justice."

Murkowski added that lawmakers cannot allow the central bank to lose its independence. If that happens, "the stability of our markets and the broader economy will suffer," she said.

Democratic Sen. Elizabeth Warren, who has criticized Powell's policy decisions in the past, also defended the independence of the Fed, accusing Trump of wanting a "sock puppet" who will follow orders to the lead the central bank, putting the economy at risk.

"Donald Trump has been trying virtually from the day he got into the White House to get control of the Fed so that he can make the decisions about monetary policy," she said Monday. "What's the risk associated with that? Any president who can do that will want to lower those interest rates, juice the American economy in short term, even though the long-term consequences of that will be more inflation, bad for the economy overall."

Former Fed chairs join in the criticism: Former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan expressed their concerns on Monday about political interference with the bank. They were joined by a group of prominent economic policymakers from both major parties.

In a statement, the group, which includes former Treasury Secretaries Henry Paulson, Timothy Geithner and Robert Rubin, said the "Federal Reserve's independence and the public's perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates."

Noting that political interference with central banks is commonly found in "emerging markets with weak institutions," the economists said such interference "has no place in the United States whose greatest strength is the rule of law."

Other economists spoke up, as well. Jan Hatzius, chief economist at Goldman Sachs, said analysts have been worried about Fed independence. "Obviously, there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns," he said Monday at a conference in London.

University of Michigan economist Justin Wolfers said the Trump administration's move against Powell is unprecedented in U.S. history. "This was the president threatening the Fed chair with jail," Wolfers said. "We've seen these tactics before in Argentina, Russia, Turkey, Venezuela and Zimbabwe. This is the stuff of tin pot dictators. This is the stuff that tends to precede hyperinflation. This is the sort of story that never ends well."

White House defends Trump's attacks: White House Press Secretary Karoline Leavitt told reporters that Trump the president supports Fed independence but feels that rates should be lower and is free to criticize Powell. "The president has every right to criticize the Fed chair," Leavitt said. "As for whether or not Jerome Powell is a criminal, that's an answer the Department of Justice is going to have to find out and it looks like they intend to find that out."

Congress Pushes for Progress on Government Funding

Congress will look to make more progress this week on funding the government for the rest of fiscal year 2026, but the firestorm sparked by last week's ICE shooting that killed Renee Good in Minneapolis is complicating one part of the funding fight: money for the Department of Homeland Security.

Appropriators on Sunday released their next funding package, a $76.3 billion, two-bill bundle covering the departments of State and Treasury as well as the Internal Revenue Service, the District of Columbia, the federal judiciary, the Federal Trade Commission and other programs. But a bipartisan deal on funding for the Department of Homeland Security has not come together, and after the Minneapolis shooting, Democrats called for additional restraints on Immigration and Customs Enforcement operations and the Trump administration's immigration crackdown.

"We cannot just hope for better. No more money for DHS without accountability," Sen. Chris Van Hollen of Maryland said in a post on X.

What's in the new funding package: One bill, the Financial Services and General Government Appropriations Act, would provide $26.5 billion in total funding, including just over $13 billion for the Treasury Department and about $9.7 billion for the judiciary.

The second bill, the National Security, Department of State, and Related Programs Appropriations Act, would provide $50 billion in funding - a cut of more than $9 billion compared to 2025, codifying the administration's rescissions in what House Republicans described as an unprecedented reduction.

Democrats said they had succeeded in fending off more drastic cuts and Republican riders.

"This compromise legislation rejects President Trump's decimation of America's foreign assistance programs and provides critical investments to save lives, reduce conflict, and strengthen our alliances and our national security," Sen. Patty Murray, the top Democratic appropriator in the Senate, said in a statement. "These were tough negotiations under extremely challenging circumstances, and while I strongly disagree with some of the difficult spending decisions that were ultimately made, there is no doubt in my mind that this bipartisan compromise is a significantly better outcome than another yearlong continuing resolution that provides President Trump with slush funds and more power-and that fails to address urgent problems. Passing these bills will help ensure Congress, not President Trump and Russ Vought, decide how taxpayer dollars are spent."

House GOP leaders reportedly are looking to set up a floor vote on the package as soon as Wednesday.

The Senate, meanwhile, just voted this evening to advance the bipartisan, three-bill funding package that easily cleared the House last week.

What's next: "Congress may look to fund the Department of Homeland Security with a continuing resolution for the rest of FY2026," Punchbowl News reported Monday.

With the January 30 funding deadline approaching, the massive defense spending bill and the one covering the Departments of Labor and Health and Human Services aren't done yet either. President Trump's threats of military action are likely to complicate the defense bill. Congress may well need to pass another short-term funding extension.

What Got Lost in Trump's Government Cuts

The Atlantic's Franklin Foer is out with a lengthy look at the Trump administration purge that cut some 300,000 federal workers over President Trump's first year back in office. The number itself is significant, but Foer says that it understates the destruction wrought by the Department of Government Efficiency and its cuts, which saw a disproportionate number of top experts and experienced hands leave the federal workforce.

"Until the purges of the past year, the U.S. government housed an unmatched collection of experts, capable of some of the greatest feats in human existence. The achievements of this corps bear legendary names: the Manhattan Project, Apollo, the Human Genome Project," Foer writes. "Under Trump, the expertise capable of such achievements has begun to vanish. His administration isn't simply committed to shrinking government; it sees career officials as the enemy within, an entrenched elite exploiting its power and imposing its ideology on the nation. Its demise is not collateral damage but the imperative. What took generations to build is being dismantled in months, and with it goes not just expertise but what remains of the shared American faith in expertise itself."

To better understand what was being lost in the cuts, Foer interviewed 50 federal workers who were either fired or resigned. You can read his short profiles of them here (subscription required).

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