The world's major central banks have taken an unusual step and come out en masse to support Jerome Powell and the US Federal Reserve Following the news that the Department of Justice has opened a criminal investigation against the Fed chairman for his testimony regarding the renovation of the central bank's headquarters, what initially seemed like a technical matter has transformed into a major political clash that is worrying markets and monetary authorities across the globe.
At the heart of the controversy is the central bank independence: The major central banks stand in solidarity with Powell Because they see the legal offensive and political harassment as an attempt to influence decisions on interest rates. For many governors, the case has become a test of the extent to which the boundaries between political power and the institutions responsible for ensuring price and financial stability are respected.
An unprecedented joint letter: the ECB and the BIS speak out
The most striking reaction has come from Europe. President of the European Central Bank, Christine Lagarde, and Pablo Hernandez de Kos, in his role as CEO of Bank for International Settlements (BIS)They have positioned themselves at the forefront of support for Powell. Both are among the signatories of a joint statement in which the heads of several central banks express their explicit support for the Fed and its chairman.
The text emphasizes that “The independence of central banks is fundamental to price, financial and economic stability, for the benefit of the citizens we serve.”This is not a minor distinction: the signatories insist that this autonomy only makes sense if it is accompanied by respect for the rule of law and clear mechanisms for democratic accountability, but they flatly reject the idea that monetary policy should become yet another weapon in partisan struggles.
The letter also states that Powell has carried out his duties with integrityThe statement focuses on the mandate given to him by Congress and demonstrates “an unwavering commitment to the public interest.” The governors who signed the document describe the Fed chairman as “a respected colleague, highly esteemed by all who have worked with him,” a phrase intended to make it clear that their support transcends political boundaries and affiliations.
Among the signatories are key figures in European and global markets, such as Andrew BaileyGovernor of the Bank of England, and the French Francois Villeroy de Galhauwho also chairs the BIS board. They are joined by the top officials of the central banks of Sweden, Denmark, Switzerland, Australia, Canada, South Korea, Norway, and Brazil, making the message a genuine international front in support of the Fed.
This public stance completes a trend that had already been seen in other forums. Lagarde has already come to Powell's defense In international meetings such as the ECB's Sintra conference, he went so far as to say that, if he were in their position, he would act "in the same way" in the face of political pressure. The current letter, however, raises the tone and formalizes that support in a document coordinated by multiple central banks.
The criminal investigation: from the technical file to the political pulse
The trigger for this wave of solidarity was Powell's announcement that The federal prosecutor's office has opened a criminal investigation. Regarding his testimony before Congress last June, the Fed chairman explained the details of a multi-billion dollar renovation of the institution's historic buildings in Washington, a project that had already drawn criticism for its high cost.
In a video message posted on social media, Powell recounted that The Justice Department has issued grand jury subpoenas. Regarding his testimony before the Senate Banking Committee, the Fed chairman insisted that the institution has been transparent with Congress, both through testimony and public documentation, and dismissed the arguments used to open the case as "pretexts."
Powell didn't mince words and defined Washington's actions as a “unprecedented action”, linked to “threats and constant pressure” on the Federal Reserve. He asserted that he maintains a “deep respect for the rule of law and accountability,” but made it clear that, in his view, the investigation is not really about the renovation of the buildings or parliamentary oversight, but rather about interest rate decisions.
In one of the most discussed passages of his speech, Powell stated that “No one, and certainly not the Chairman of the Federal Reserve, is above the law.”But he warned that the threat of criminal charges is “a consequence of the Federal Reserve setting interest rates based on the best assessment of what will serve the public, rather than following the preferences of the US president.” That message was interpreted by the markets as a sign that he is not willing to bow to the White House.
The Trump administration, for its part, has denied being behind the process. The presidential spokesperson, Karoline LeavittHe responded with a firm “no” when asked if the president had ordered the Justice Department to open the case against Powell. He avoided, however, clarifying to what extent the president’s repeated criticisms might have influenced the prosecutors’ decision, and merely maintained that Trump “has every right to criticize” the Fed chief under the right to freedom of expression.
Trump vs. the Fed: Insults, Pressure, and a Poisoned Succession
The clash between the White House and the Federal Reserve has been brewing for a long time. Donald Trump has been attacking Powell for months. In his public appearances and on social media, he has gone so far as to call him "fool," "stupid," and even "an idiot" for not complying with his demands for more aggressive interest rate cuts to boost the economy.
During the Fed's recent decisions, the institution opted to adjust rates to a range around 3,5%-3,75% With a 0,25-point cut, a prudent decision aimed at combating inflation without destabilizing the labor market, Powell insisted that the central bank's priority is "to use our tools to achieve the goals Congress has set for us: maximum employment, price stability, and financial stability," a message that made it clear that pressure from the White House would not dictate the course of action.
Alongside the criticism, Trump has openly flirted with the idea of firing PowellThe chairman even raised the possibility of removing him, something unprecedented in the Fed's recent history, and announced that he already had "a decision in mind" about who would replace him when his term as chairman of the central bank ends. Although he hasn't revealed the name, he has hinted that he is considering several options both within and outside the board of governors.
This offensive has muddied the waters surrounding Powell's succession and unleashed a political battle in the Senate. Some Republican senators, such as Thom TillisKey members of the Banking Committee have said they will oppose any Trump nomination to the Fed until the investigation is clarified, further complicating the appointment timeline. John ThuneThe leader of the majority in the Upper House has warned that the central bank's independence in setting monetary policy must be maintained "without political interference".
In this context, analysts speculate that Powell might opt for to maintain their seat on the council of governors beyond MayWhen his term as chairman expires. Although the usual practice is for the top executive to also leave the board when they step down as chairman, Powell would have legal leeway to continue until 2028, which would open up an unconventional but possible scenario if he considers it the best way to protect the institution's autonomy.
Support from prominent former bankers and economists in the United States
Support for Powell has not been limited to foreign central banks. In the United States, the three living former chairman of the Federal Reserve —Alan Greenspan, Ben Bernanke and Janet YellenThey have signed a joint letter defending the independence of the central bank and its current president. This is a very rare gesture among former officials of the institution, who usually maintain a low profile regarding the decisions of their successors.
The document, also endorsed by several former Treasury secretaries —including Timothy Geithner, Jacob Lew, Henry Paulson, Robert Rubin and Yellen herself in her recent role in Joe Biden's administration—, warns that Public perception of the Fed's independence is "crucial" for economic performanceWithout that confidence, the central bank would have much more difficulty controlling inflation, ensuring maximum employment, and stabilizing long-term interest rates.
The letter goes further and describes the criminal investigation against Powell as “an unprecedented attempt to use fiscal attacks to undermine” the autonomy of the central bank. The signatories compare this strategy to the way monetary policy is handled in some emerging markets “with weak institutions,” where political interference has led to episodes of runaway inflation, economic volatility, and systemic risk.
Among those supporting the initiative are also renowned economists who have headed the White House Council of Economic Advisers —Jared Bernstein, Jason Furman, Glenn Hubbard, Gregory Mankiw and Christina Romer—, as well as the academic Kenneth RogoffProfessor at Harvard and former chief economist of the International Monetary Fund. For this group, the Powell case directly affects the institutional reputation of the United States as a country based on the rule of law.
The signatories stress that this type of pressure “has no place in the United States,” whose strength, they remind us, lies in the stability of its rules and the separation of powers. They fear that the precedent can be used in the future against other officials who make unpopular but necessary decisions to maintain macroeconomic stability.
Implications for Europe and for financial markets
From a European perspective, the standoff between the White House and the Fed is not just a domestic American issue. The Federal Reserve's decisions set the tone for global monetary policy. and influence the evolution of interest rates, the interbank marketcapital flows and the dollar-euro exchange rate. Any doubt about the Fed's independence could translate into increased volatility and sharp changes in risk premiums.
For the ECB and the other central banks of the Old Continent, what is at stake is also the defense of their own model. In the eurozone, The independence of the ECB is protected by European treaties.But experience shows that political pressure can emerge during times of crisis, as happened during the Great Recession and the sovereign debt crisis. The letter of support for Powell, in that sense, serves as an advance reminder that crossing certain lines can be costly in the long run.
Markets are closely watching how all this political noise might influence future interest rate decisions in the United States. Some analysts, such as the German firm Berenberg, suggest that Trump's offensive could be aimed at discouraging Powell from continuing in his position.Rather than pressuring him on immediate monetary policy decisions, the idea would be to replace the Fed's leadership with someone more aligned with the White House's priorities.
Strategists from various organizations have outlined different scenarios for the future composition of the Federal Open Market Committee (FOMC). It is speculated that figures close to Trump, such as Kevin Warsh or Kevin HassettThey may enter the council of governors if resignations or dismissals occur, accompanied by profiles like that of the current governor Stephen MiranIn the most extreme scenario, the FOMC could end up with several members aligned with the president, potentially more inclined to cutting interest rates even without clear support from macroeconomic data.
However, analysts from entities such as ING They point out that, even with new additions, Trump's allies would still be in the minority on the board. They graphically describe them as having "four MAGA doves" on a twelve-member committee, far from a complete takeover. The president, they note, "clearly wants Powell to leave his post, but even if he succeeds, it would still only be one vote," meaning the White House could influence monetary policy, but not completely dominate it.
Meanwhile, uncertainty surrounding the outcome of the investigation and Powell's continued tenure is keeping investors and policymakers on edge. The general feeling is that The case transcends the figure of the Fed chairman himself. and has become a symbol of how far political pressure can go on a central bank in a large advanced economy.
The episode has served to unite a broad coalition of central bankers and economists in defense of the Federal Reserve's autonomy, with a very active role played by Europe and institutions such as the ECB and the BIS. Beyond the immediate legal and political battle, the message they are sending is clear: confidence in the currency, price stability, and the smooth functioning of the global economy depend to a large extent on the Federal Reserve's autonomy. central banks should maintain their ability to make decisions without direct interference from political power.even if that means facing pressures as intense as those surrounding Jerome Powell today.
