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The Trump administration recently renewed its fight with the Federal Reserve with a criminal investigation against chairman Jerome Powell that has revived memories of the 1970s inflation era, when political pressure weakened central banks and prices ran out of control.
The comparison many economists are making is not subtle.In 2019, Recep Tayyip Erdoğan, the president of Turkey, fired central bank governor Murat Çetinkaya after he refused to cut rates.The result was brutal.The lira collapsed and inflation surged.
Even then, Erdoğan never claimed the banker was a criminal. In the United States, Jay Powell, the Fed chair, is now facing a federal investigation over a $2.5bn renovation of the Fed’s headquarters.
<h3 id="powell-breaks-protocol-as-trump-pressure-escalates">Powell breaks protocol as Trump pressure escalates</h3>
As Cryptopolitan <a href="https://www.cryptopolitan.com/powell-briefed-senators-on-2-5b-project/" rel="noopener noreferrer nofollow">reported</a>, Powell had released a short video on the Fed’s website, saying the investigation was a pretext designed by Trump to force deep interest rate cuts. That public response broke decades of Fed tradition and what has been Powell’s own personal style.
Larry Kudlow, who previously ran the National Economic Council, said Jeanine Pirro, the U.S. attorney in Washington, “may have pulled the trigger” on Powell “a little too fast.”
Markets stayed calm. Stocks barely moved. Bond yields were steady. Investors are betting the Fed will resist pressure to cut rates to near zero. Still, economists called the moment alarming. Since World War II, the White House and the Fed have acted as anchors of global stability. Now they are openly clashing.
Klaas Knot, former head of the Dutch central bank, said the U.S. once supported institutions needed for a market economy to work. “It was leading by example,” he said. “They have apparently chosen to set an entirely different example.”
The timing matters. Trump is traveling to Davos to sell his economic agenda as the Supreme Court hears arguments in the case of Lisa Cook. She is a Fed governor he tried to fire over mortgage fraud claims. Lisa denies them and has not been charged.
<h3 id="political-backlash-complicates-trump-plans-for-the-fed">Political backlash complicates Trump plans for the Fed</h3>
The conflict between Trump and Powell is long-running. After appointing Powell, the president turned on him following rate hikes. During his second term, attacks intensified.
Trump called Powell a “stubborn mule” and a “numbskull.” He said he would “love to fire” him for refusing to cut rates to 1 per cent. The White House later focused on the Fed building project, now $700mn over budget, which sits at the center of the DOJ probe.
Powell stayed silent for months, even when Trump attempted to remove Lisa Cook. That changed with the video. Capitol Hill reacted. Thom Tillis of North Carolina backed Powell. Lisa Murkowski and John Kennedy followed. On Wall Street, Jamie Dimon joined Christine Lagarde in calling for central bank independence.
Glenn Hubbard, former chair of George W Bush’s economic council, said Powell handled the video well. “He clarified what had happened,” Hubbard said. “He didn’t editorialise.” Hubbard also signed a letter condemning the probe, alongside every living former Fed chair.
Inside the administration, cracks appeared. Scott Bessent, the Treasury secretary, publicly backed a review of the Fed but privately urged Trump not to pursue the investigation.
Treasury officials later said there was “zero daylight” between Bessent and the president. Hubbard called the episode an “own goal of epic proportions.”
The probe has made it harder for Trump to reshape the Fed. Powell’s chair term ends in four months, but he can stay on the board until January 2028. Allies say Powell is now reconsidering whether to step down. His exit would allow Trump to appoint another ally.
Senate approval is another obstacle.
Tillis has threatened to block any nominee until the probe is dropped. If that drags on, Powell could remain chair. The controversy has also hurt Kevin Hassett, a close Trump ally. Hassett backed the probe early, then said, “I expect that there’s nothing to see here.”
Later, Trump hinted he might keep Hassett in his current role.
Other names are floating. Kevin Warsh, Chris Waller, and Rick Rieder have stayed silent. Stephen Miran, already approved by the Senate, joined the Fed board last year.
James Egelhof of BNP Paribas <a href="https://www.ft.com/content/77f43154-8ce1-45ab-bcfd-23b77ee06f21" rel="noopener noreferrer nofollow" target="_blank">said</a> the Fed would stick to its policy framework. Still, some funds are hedging. Pimco, which manages $2.2tn, is reducing exposure to the dollar. Paul Diggle warned of creeping politicisation. Adam Posen said governments are planning paths “not dependent on the US.”
Even if the DOJ case fails, economists warn the damage may linger. Lael Brainard said officials may hesitate to speak freely. “Everybody is nervous,” she said, “that they too could be the subject of a criminal investigation.”
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Powell breaks protocol as Trump pressure escalates

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