Warnings of Consequences from Powell Probe; Yellen Calls It ‘A Terrifying Move’

Janet Yellen, the former Federal Reserve chair, has warned that the criminal investigation targeting current Fed Chair Jerome Powell poses a grave threat to the independence of the U.S. central bank.


Yellen emphasized that markets should be far more concerned than they currently appear to be. These remarks come amid escalating tensions between the Trump administration and the central bank, raising widespread fears about the future of U.S. monetary policy.


Yellen’s comments were made during an interview with CNBC, where she described the probe as “extremely terrifying” for an institution meant to operate insulated from political pressures.


Political Storm

The U.S. Department of Justice has launched a criminal investigation into Federal Reserve Chair Jerome Powell, related to his congressional testimony on the central bank’s building renovation projects.

Reports indicate this probe represents a fresh escalation by the Trump administration in its pressure campaign against the Fed, following months of public criticism over interest rate policies.
Yellen stressed that she sees no “possibility of Powell committing a crime like perjury,” affirming that she knows him well and trusts his professional integrity.


Underwhelming Concern?

Yellen expressed surprise at the markets’ muted reaction to this serious development, arguing that investors have yet to grasp the full scale of risks stemming from direct political interference in the Fed’s operations.

The investigation coincided with declines in U.S. stock indices, as the Dow Jones, Nasdaq, and S&P 500 fell amid concerns over potential impacts on monetary policy and investor confidence.
Warnings from Former Fed Leaders


Yellen was not alone in her stance; she, along with two other former Fed chairs—Ben Bernanke and Alan Greenspan—issued a joint statement describing the investigation as an “unprecedented attack” on the central bank’s independence, akin to what occurs in countries with fragile institutions.


Powell’s Response: Fed Independence at Stake

In a televised statement, Powell said the probe represents a dangerous step, noting that the central bank makes decisions in the public interest, not to suit any president’s or administration’s preferences.

He affirmed his respect for the law but urged viewing the matter in the context of ongoing pressures the Fed faces from the U.S. administration.


What Makes This Probe So Dangerous?

The Federal Reserve’s independence is a cornerstone of U.S. economic stability, and any direct political meddling could lead to the politicization of interest rate decisions, erosion of investor trust, sharp market volatility, higher borrowing costs, and a weakening of the U.S. dollar.