A coterie of former Federal Reserve chairs, Treasury secretaries, and prominent economists spoke out Monday in support of Fed Chair Jerome Powell and expressed alarm over the Justice Department’s threat of a criminal prosecution at the central bank.
“The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine [the Fed’s] independence,” said the statement signed by former Fed Chairs Janet Yellen, Ben Bernanke, and Alan Greenspan, as well as four past Treasury secretaries who served under both Republican and Democratic presidents.
“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” it continued. “It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.”
Yellen told CNBC on Monday that the investigation compromises the central bank’s independence and said she thinks financial markets should be more concerned about a situation she called “extremely chilling.”
Markets were responding in early trading Monday, with stocks wavering on the news. The dollar, Treasurys, and US equities futures slid, though the declines were small.
Wilmer Stith, senior bond portfolio manager for Wilmington Trust, warned that bond yields could move higher, raising borrowing costs for consumers, especially for mortgages, and counteracting any relief from Fannie Mae and Freddie Mac’s $200 billion purchase of mortgage bonds.
President Trump is “shooting himself in the foot because he’s trying to bring down mortgage rates, trying to allow first-time homebuyers to afford a house,” said Stith.
Stith warned that yields are likely to move higher as concerns grow about central bank independence and the Fed’s willingness to bring down inflation as investors demand compensation for the erosion of principal.
Federal Reserve Chairman Jerome Powell, right, and President Donald Trump look over a document of cost figures during a visit to the Federal Reserve, July 24, 2025, in Washington. (AP Photo/Julia Demaree Nikhinson, File) · ASSOCIATED PRESS
Others warn that Trump’s willingness to use criminal subpoenas to pressure the Fed will make it even harder for the next Fed chair to convince markets and the public of central bank independence, which could in turn make it harder to control inflation expectations.
Krishna Guha, head of global policy and central banking strategy for Evercore ISI, predicted that the criminal investigation would unite the rest of the Fed around Powell and also isolate Trump’s nominee for Fed chair when they arrive.
Guha said he thinks those dynamics will increase the likelihood that Powell will remain at the Fed as a governor, “denying the new chair a natural majority, and threatening to derail what we believe was a hope and expectation that the old Committee could meet the new chair halfway.”
The new development also scales back the prospect for rate cuts, Trump’s main goal.
“This action promises the worst of all worlds for Trump (and the markets) — higher inflation risk and monetary policy uncertainty, but reduced likelihood of faster cuts, with the old FOMC more likely to block or slow the new chair from June,” said Guha.
Esther George, former head of the Kansas City Fed, said she is “alarmed by the level of intimidation and pressure” aimed at the Federal Reserve.
Read more: How much control does the president have over the Fed and interest rates?
“Not only do these tactics undermine the Fed’s ability to achieve its congressional mandates but they ultimately undermine confidence in the United States,” she said.
The latest threat could also make it less likely that Trump’s nominee to be the next Fed Chair — expected to be either Trump adviser Kevin Hassett, former Fed governor Kevin Warsh, or current Fed governor Christopher Waller — would be confirmed by the Senate in time to take over when Powell’s current term ends in early May.
Republican Senator Thom Tillis, who sits on the Senate Banking Committee, has already warned that he will oppose the confirmation of any nominee for the Fed — including the upcoming Fed chair vacancy —until this legal matter is resolved. Another Republican, Sen. Lisa Murkowski of Alaska, followed Monday with her own statement of support for Tillis and alarm over the investigation.
Capital Economics North America chief economist Paul Ashworth said that if a confirmation process stalls out and Trump doesn’t have a replacement in place in time, the Fed board would presumably vote to keep Powell as chair pro tempore.
Ashworth also said he thinks that if the Justice Department moves to prosecute, it’s more likely that Powell would remain on the Fed board even after his term as chair ends. His term as a board member doesn’t end until 2028.
“That would restrict Trump’s scope to stack the Board with his own appointees,” Ashworth said. “Even if the Supreme Court supported Trump’s attempt to fire Lisa Cook for ‘mortgage fraud,’ Trump would still only have his new Chair and one other on his side (probably Stephen Miran).”