Trump admin’s criminal probe into Fed Chair raises fears about central bank independence and potential for inflation

“The Fed’s independence in shaping monetary policy in the country is something that we need to ensure,” Thune said.

A joint statement from multiple former Fed Chairs, Treasury Secretaries and others said the Fed’s independence is “critical for economic performance,” likening the criminal indictment to “how monetary policy is made in emerging markets with weak institutions (5).” The concern spread globally.

By Tuesday morning, the heads of central banks from around the world released a letter in support of Powell (6).

They, like Powell, believe that central banks must remain independent from political pressure in order to maintain economic stability.

So what happens when central bank independence is threatened? There are some real-life examples:

In 2011, Argentinian President Cristina Fernández de Kirchner fired the governor of Argentina’s central bank. Inflation jumped to 50% from 20%.

In 2018, Turkish President Tayyip Erdoğan took control of his country’s central bank, and **inflation spiked to 63% from 14%. **

North Carolina State University’s Richard Warr, associate dean for faculty and research, notes that closer to home, U.S. stock markets fell in April 2025 when Trump posted that Powell’s “termination cannot come fast enough!” (7)

Warr observed that advanced economies including Canada, Japan, Australia and European nations maintain independent central banks that “are generally credited with supporting stable, long-term economic performance” thanks to data-driven decisions.

“Trump is breaking the cardinal rule of central banking: Criticize, but don’t politicize,” Tim Mahedy, CEO and chief economist at the economic consulting firm Access/Macro, told CNN (8).

“He, and all of us, will pay a steep price if he’s successful in his pressure campaign — a cost that we would bear for generations.”

Mahedy’s warning sounds ominous, but tinkering with Fed independence holds real-world consequences for Americans and their personal finances.

The Federal Reserve has been trying to keep a lid on inflation.

Michael Klein of Tufts University wrote that inflation reflects people’s expectations and “if people expect inflation to be high they will set prices and wages that reflect these expectations which then becomes a self-fulfilling prophecy. (9)”

Inflation in turn leads to a rise in interest rates, including long-term borrowing costs like those that apply to mortgages, as well as a spike in rates on everything from credit cards to car loans.

If the Fed can no longer make independent decisions to control inflation, it could impact everything from personal savings accounts to stocks, bonds, CDs and treasuries.

If prices soar too high, it could slow economic growth and trigger a recession (10).

Despite all the warnings, some experts point to the unique power structure of the Fed. Voting rules that bind its 12 governors “make it very difficult to take away Fed independence (11).”

Powell’s term as Fed Chair ends in May but he could stay on the Board of Governors until 2028.

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New York Times (1); CNBC (2); Bloomberg (3); KOMO News (4); Substack (5); BBC (6); North Carolina State University (7); CNN (8); Econofact (9); SVB (10)

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