Federal Reserve Chair Jerome Powell speaks during a press conference following the Federal Open Markets Committee meeting at the Federal Reserve on Dec. 10, 2025 in Washington, DC.
Chip Somodevilla | Getty Images
The Justice Department’s criminal investigation of Federal Reserve chair Jerome Powell may, at first glance, feel far removed from consumers’ finances — but it could have far-reaching impacts on their wallets, according to economists.
“There’s nothing but downside here for investors and consumers,” said Mark Zandi, chief economist at Moody’s.
The primary concern is the erosion of the independence of the Federal Reserve, the U.S. central bank, from political influence, Zandi and other experts say.
If the public were to lose faith in longstanding Fed independence, economists CNBC spoke with say consumers would likely see the U.S. economy sour amid higher inflation and higher long-term interest rates on mortgages and other loans.
Investors would also likely see more stock market volatility and lower values for stocks, bonds and other assets, they say.
The cumulative effects could occur gradually, according to Martha Gimbel, executive director and co-founder of the Yale University Budget Lab.
“It happens over time,” Gimbel said. “It’s a slow erosion. The problem is, once [that faith is] eroded, it’s really, really hard to build back.”
President Donald Trump has been after the Fed — and Powell — to slash its key benchmark interest rate more aggressively. The Fed’s benchmark sets what banks charge each other for overnight lending, but also has a ripple effect on almost all of the borrowing and savings rates Americans see every day.
Trump publicly pressured the Fed chair for months and even threatened to fire him.
Trump has said he knows who he intends to choose to succeed Powell, whose term ends this year. He’s widely expected to pick someone who thinks additional rate cuts are warranted.
Powell said in a statement Sunday that the Justice Department probe — tied to the $2.5 billion renovation of the Fed’s headquarters in Washington — was another attempt by Trump to influence the central bank’s monetary policy.
The White House and Justice Department didn’t return requests for comment.
Trump, in an interview with NBC News on Sunday evening, said, “I don’t know anything about it,” referring to the criminal probe of Powell.
Trump also moved to fire Lisa Cook, one of seven Fed governors, in August. Cook filed a lawsuit to block her removal. The Supreme Court will hear oral arguments Jan. 21.
“The assault on the Fed’s independence can only mean higher rates, greater volatility, and uncertainty for consumers in the years ahead,” said Brett House, economics professor at Columbia Business School.
Short-term relief, long-term pain
Trump has said that maintaining a federal funds rate that is too high makes it harder for businesses and consumers to borrow and puts the U.S. at an economic disadvantage to countries with lower rates.
Installing loyalist Fed officials who are likely to follow Trump’s marching orders could help consumers in the short term via slightly lower borrowing costs and continued support for asset values like stocks, according to 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.”
However, the long-term consequences of applying political pressure to the Fed are “strongly negative for consumers,” Higgins said.
The risk is that reducing rates too quickly could make inflation harder to contain, he said.
“That ultimately erodes consumers’ purchasing power, raises long-term borrowing costs and undermines confidence in the Fed’s ability to stabilize prices,” he said.
There’s precedent — both in the U.S. and internationally — to suggest these downbeat forecasts aren’t hyperbole.
The 1970s offer a cautionary tale in the U.S., economists said.
In that era, Federal Reserve independence was “captured” by then-President Richard Nixon, who installed his friend and economist Arthur Burns as Fed chair, Zandi said.
Nixon pressured Burns to keep interest rates low — and boost the economy — in the run-up to the 1972 presidential election.
That pressure and resulting monetary policy set the stage for runaway inflation, economists said. Consumer prices surged throughout the ’70s and the inflation rate peaked around 15% in 1980, which remains the highest rate dating to the post-World War II period.
The Fed ultimately, under new leadership, raised interest rates to punishing levels to rein in inflation, leading to surging borrowing costs in the ’80s.
“There were other forces at work, but that was one of the keys and one of the initial starting points for high inflation during that period,” Zandi said. “That’s the path we’re headed down here.”
Other nations like Argentina, Russia, Turkey, Venezuela and Zimbabwe have also seen their executive branches wrest power from their respective central banks, to disastrous economic consequences, Gimbel said.
“It’s not a list of countries where people think, ‘Oh man, I wish our economy was more like Zimbabwe,'” she said. “It speaks to the fact that this is really dangerous.”
Sacrificing Fed independence could ultimately trigger the opposite economic and financial impact of what Trump is seeking, economists said.
Mortgage rates, for example, are tied more to yields on the 10-year U.S. Treasury bond, economists said.
The Treasury market tends to move with the whims of Wall Street and not in lockstep with Fed policy. If Wall Street sees higher inflation ahead, Treasury yields are likely to increase due to those perceived risks — and that would result in higher mortgage rates, economists said.
“Our concern is that this will lead to higher interest rates as the market questions the Fed’s ability to respond if there are signs of inflation,” Jaret Seiberg, an analyst at TD Cowen’s Washington Research Group, wrote in a note Monday. “That could negatively offset Trump’s other efforts to bring down mortgage rates.”
Inflation is also “kryptonite” for existing bond investors, said Zandi. As inflation rises, the net value of a bond’s income stream declines and the price declines, he said.
Likewise, stock prices are guided by investor perceptions about a company’s future earnings potential. The stock market on Monday looked past news of the investigation and closed at record highs.
But if investors perceive high inflation is on the horizon due to near-term Fed policy, stock prices may fall since inflation erodes companies’ future earnings, Zandi said.
“We will be a much diminished economy in the future if we go down this path,” he said.
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