President Donald Trump desires substantial interest rate cuts, a booming stock market, and perhaps most urgently, the removal of the Federal Reserve Chair he himself appointed.
However, the unprecedented criminal investigation launched by the Trump administration against Jerome Powell is unlikely to achieve any of these objectives.
In fact, this dramatic escalation of the long-running "Trump-Powell feud" could ultimately backfire on Trump himself. The move risks delaying the very rate cuts he seeks, sparking panic on Wall Street, and could even prompt Powell to remain at the Fed beyond the expiration of his term as Chair in May next year.
The Justice Department's threat to prosecute Powell criminally may even complicate Trump's efforts to appoint a loyalist to replace him.
"This is the worst kind of 'lawfare' tactic," former Dallas Fed President Richard Fisher said in a phone interview, expressing disbelief at the administration's descent to such tactics, calling it excessive.
Fisher, who also serves on the board of CNN's parent company, Warner Bros. Discovery, admitted he saw no rationale for the investigation beyond vindictiveness.
"Trump will not succeed"
In many respects, this action has crossed a line.
Previously, to avoid alarming investors and corporate CEOs, the Trump administration avoided targeting Powell directly, opting instead for harsh public criticism.
Investors immediately registered their disapproval of this sharp escalation, briefly resuming a "sell U.S. stocks" trend reminiscent of the one triggered last spring by Trump's historic tariff hikes.
Precious metals reflected the market sentiment: gold prices surged 3% to break above $4,600 per ounce, setting a new record high, while silver, after its best year since the 1979 inflation scare, jumped another 8% on Monday.
Economists expressed concern that the Justice Department's probe directly assaults the Fed's independence, which is institutionally designed to be insulated from political interference.
"Criminalizing monetary policy-making is an outright atrocity," University of Michigan economics professor Justin Wolfers stated, arguing that all Americans should oppose an action contrary to economics, political norms, the rule of law, and market stability.
Former San Francisco Fed official Tim Mahedy suggested Trump's move signals to current and future Fed officials that failing to comply with his rate-cut demands will be met with retribution.
"Trump will not prevail in this game," said Mahedy, now CEO and chief economist at Access Macro, asserting that Powell is not easily manipulated and the Fed will not cut rates in January.
The action has even angered Treasury Secretary Scott Bessent, who reportedly expressed dissatisfaction with the decision to prosecute Powell, having previously warned Trump that firing Powell could roil markets.
Rate cuts remain unlikely
In reality, according to the CME FedWatch Tool, the market currently sees only a 5% probability of a rate cut at the Fed's next meeting in late January. This is little changed from 4.4% on Sunday and down significantly from 17% a week ago.
"This behavior is outrageous; it would be shocking for any president to do such a thing," former Fed Vice Chair Alan Blinder wrote, adding that fortunately, the Fed and Chair Powell are not easily intimidated.
Fed watchers note that Trump's attack on the institution might make officials hesitant about cutting rates even more cautious, to avoid appearing subservient to the President.
"All told, this move runs counter to the President's policy agenda and could even force the FOMC into a more hawkish stance to assert its independence from political pressure," Mahedy said.
All living former Fed Chairs, along with a bipartisan group of former Treasury Secretaries and White House economists, issued a joint statement defending Powell. They called the investigation "an unprecedented attempt to undermine Fed independence through prosecution" and compared the attack to turmoil typical of emerging markets.
The White House attempted to distance Trump from the Justice Department's probe.
Press Secretary Caroline Levitt told reporters that Trump never directed the DOJ to investigate Powell, despite Trump having publicly lambasted Powell as a "clod," a "dope," and a "complete fool."
Powell may not "retire gracefully"
Trump's efforts to oust Powell may ultimately prove counterproductive.
Although Powell's term as Chair expires next May, he could theoretically remain at the Fed for years longer, as his term on the Board of Governors does not end until January 2028.
Powell has been ambiguous about his future plans. This ambiguity not only prevents Trump from smoothly nominating a successor to the Board seat but also ensures a staunch defender of central bank independence remains within the Fed.
When asked by CNN last December about staying on, Powell gave an equivocal response, stating he was focused on his remaining term as Chair and had no new information about his future.
Notably, last week, investors on the prediction market Kalshi assigned an 85% probability that Powell would resign from the Board by August. However, after news of the criminal investigation broke, that probability plummeted to just 55%.
In other words, the market now judges that the likelihood of Powell staying has increased—precisely the opposite of Trump's intended outcome.
"In my view, this is an extremely unwise and ham-fisted move," said Douglas Holtz-Eakin, president of the center-right think tank American Action Forum, calling it profoundly stupid.
"A highly unwise decision"
Trump may soon announce a candidate to replace Powell, with former Fed Governor Kevin Warsh and former White House economist Kevin Hassett among the frontrunners.
However, any nominee must be confirmed by the U.S. Senate, and the investigation into Powell has significantly complicated that task.
Minutes after Powell issued a strong video statement on Sunday evening, Republican Senator Thom Tillis posted on X that the subpoena should leave "no doubt" that Trump administration officials are "deliberately undermining Fed independence."
Tillis, a member of the Senate Banking Committee which would vet a Fed Chair successor, stated clearly that until Powell's legal situation is resolved, he would oppose "any nomination for a Fed position—including the soon-to-be-vacant Chairmanship."
Alaska Republican Senator Lisa Murkowski endorsed Tillis's stance, calling the administration's action "simply a coercion tactic."
If other Republican senators follow suit, Trump's plan to appoint Powell's successor could stall or even fail entirely.
