What the investigation of Fed Chair Jerome Powell means for your money
Federal Reserve chairman Jerome Powell speaks at a press conference following the Federal Open Markets Committee meeting at the Federal Reserve on December 10, 2025 in Washington, DC.
Chip Somodevilla | Getty Images
The Justice Department’s criminal investigation of Federal Reserve Chairman Jerome Powell may, at first glance, seem far removed from consumers’ financial situations; But according to economists, this could have far-reaching effects on their wallets.
“There’s nothing but negatives here for investors and consumers,” said Mark Zandi, chief economist at Moody’s.
Zandi and other experts say the main concern is the erosion of the independence of the Federal Reserve, the U.S. central bank, from political influence.
Economists told CNBC that if the public loses faith in the Fed’s longstanding independence, consumers will think the U.S. economy will suffer due to high inflation and high long-term interest rates on mortgages and other loans.
Investors will also see more volatility in the stock market and lower values for stocks, bonds and other assets, they said.
Cumulative effects can occur gradually, according to Martha Gimbel, managing director and co-founder of Yale University’s Budget Lab.
“This happens over time,” Gimbel said. “It’s a slow erosion. The problem is, once [that faith is] “It’s eroded, it’s really hard to rebuild.”
President Donald Trump is calling on the Fed and Powell to cut the key interest rate more aggressively. The Fed’s benchmark determines the rate banks charge each other for overnight lending, but it also has a ripple effect on nearly all borrowing and savings rates Americans see every day.
Trump publicly pressured the Fed chairman for months and even threatened to fire him.
Trump said he knew Who is he thinking of choosing? He will replace Powell, whose term ends in May. He is expected to choose someone who thinks additional rate cuts are necessary.
Powell’s He said in a statement on Sunday: The Justice Department investigation linked to the $2.5 billion renovation of the Fed’s headquarters in Washington appeared to be another attempt by Trump to influence the central bank’s monetary policy.
The White House and the Justice Department did not respond to requests for comment.
In his interview with Trump NBC News “I don’t know anything about this,” he said Sunday evening, referring to the criminal investigation into Powell.
In August, Trump moved to fire Lisa Cook, one of seven Fed governors. Cook filed a lawsuit to block his removal. The Supreme Court will hear oral arguments on January 21.
“An attack on the Fed’s independence could only mean higher rates, more volatility and uncertainty for consumers in the coming years,” said Brett House, an economics professor at Columbia Business School.
Short term relief, long term pain
Trump said keeping the federal funds rate too high makes it harder for businesses and consumers to borrow money and puts the United States at an economic disadvantage against countries with low interest rates.
Installing loyal Fed officials who are likely to do Trump’s bidding could help consumers in the short term through slightly lower borrowing costs and continued support for asset values such as stocks, said Mark Higgins, senior vice president at Index Fund Advisors and author of “Investing in U.S. Financial History: Understanding the Past to Forecast the Future.”
But Higgins said the long-term consequences of applying political pressure to the Fed are “extremely negative for consumers.”
The risk, he said, is that lowering interest rates too quickly could make it harder to control inflation.
“This ultimately erodes consumers’ purchasing power, increases long-term borrowing costs, and undermines confidence in the Fed’s ability to stabilize prices,” he said.
There are precedents, both in the United States and internationally, to suggest that these negative predictions are not exaggerations.
Economists say the 1970s offer a cautionary tale in the United States.
Zandi said the Fed’s independence at the time was “captured” by President Richard Nixon, who appointed his friend and economist Arthur Burns as Fed chairman.
Nixon Pressured Burns to keep interest rates low – and stimulate the economy – ahead of the 1972 presidential election.
This pressure and the resulting monetary policy prepare the scene For out-of-control inflation, economists said. Consumer prices increased throughout the 70s and the inflation rate peaked at around 15 percent In 1980, this remains the highest rate since the post-World War II era.
Ultimately, the Fed, under new leadership, raised interest rates Going to punitive levels to rein in inflation led to rising borrowing costs in the 1980s.
“There were other forces at work, but this was one of the keys and initial starting points for high inflation at that time,” Zandi said. he said. “That’s the path we’re heading towards here.”
Gimbel said other nations, such as Argentina, Russia, Turkey, Venezuela and Zimbabwe, have also seen their executive branches seize power from their central banks, leading to disastrous economic consequences.
“This is not a list of countries where people think, ‘I wish our economy was like Zimbabwe’,” he said. “It speaks to the fact that this is really dangerous.”
Economists have said compromising the Fed’s independence could ultimately trigger an economic and financial impact that is exactly the opposite of what Trump intended.
Mortgage rates, for example, depend more on the yield on the 10-year U.S. Treasury than the federal funds rate, economists say.
The Treasury market tends to move at the whims of Wall Street, not in sync with Fed policy. If Wall Street sees higher inflation going forward, Treasury yields will likely rise due to perceived risks, leading to higher mortgage rates, economists said.
“We are concerned this will lead to higher interest rates as the market questions the Fed’s ability to respond if there are signs of inflation,” analyst Jaret Seiberg of TD Cowen’s Washington Research Group wrote in a note Monday. he said. “This could negatively impact Trump’s other efforts to lower mortgage rates.”
Inflation is also “kryptonite” for existing bond investors, Zandi said. As inflation rises, the net value of the bond’s income stream decreases and its price declines, he said.
Similarly, stock prices are driven by investors’ perceptions of the company’s future earnings potential.
On Monday, the stock market looked past news of the investigation and closed at record highs. But if investors perceive that higher inflation is on the horizon due to near-term Fed policy, stock prices could fall as inflation erodes companies’ future earnings, Zandi said.
“If we go this way, we will have a much smaller economy in the future,” he said.
