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Industry Opinion
Fed’s Independence and U.S. Financial Market
By Nironjan Roy, CPA, CMA — Certified Anti-money laundering Specialist and Banker
Over the last four to five decades, the USA has been the most successful country in the world, achieving two milestones in finance and the economy: a strong dollar and the largest and most efficient financial market.
About a half-century ago, there was a basket of currencies, including GBP (Great Britain Pound), DM (Deutsche Mark), and Japanese Yen, which, alongside the U.S. Dollar, were used to settle international transactions, but those currencies could not maintain their strength over time and have now almost disappeared. Similarly, there were some financial hubs, viz., the Hong Kong-based investment center ERM (Exchange Rate Mechanism) in Europe, once considered a vibrant investment center, has lost its luster over time.
Even the EU (European Union) was established with its common currency, the EUR, which, although initially maintained steady gains and acceptance in international trade, has eventually lost momentum following Brexit.
On the other hand, the U.S. Dollar has emerged as the most stable currency in the world and, as such, is extensively used to settle international transactions. In fact, most of the world trades are now denominated in U.S. dollars, which enjoys a value preference. Similarly, the USA is now the world’s largest and most efficient financial market. One of the main reasons the U.S. dollar is the world’s most acceptable currency and the U.S. Financial market is the world’s largest and most efficient investment center is the Fed’s (Federal Reserve) absolute neutrality and independence. Because of the regulator’s highest level of independence, not only Americans but also investors worldwide, including the central banks of most countries, feel comfortable and secure investing in the US financial market despite many political differences. The Fed’s neutrality and independence are now being questioned amid the conflict between President Donald Trump and Fed Chair Jerome Powell.
The Powell/Trump tussle
The tussle between President Trump and Fed’s Chair Jerome Powell is not new; it began with Trump’s return to the White House for a second term, and has now been exposed following a criminal investigation initiated by the Department of Justice (DOJ) against Jerome Powell. As reported in the media, the DOJ has initiated a criminal investigation based on Powell's testimony before the Senate Banking Committee last June, regarding allegations of cost overruns in renovating the Fed Headquarters. In the said testimony, Powell has defended the Fed’s expensive renovation project, approved in 2019 at an estimated cost of US$1.90 billion, with an overrun of US$2.50 billion. President Trump and his administration have used the cost overrun on the Fed’s building renovation project as an excuse to remove Powell.
Since Trump’s return to the White House, Fed Chairman Powell has been very strategic in dealing with Trump, avoiding confrontational situations. But eventually, he could not keep it and took a public stand, releasing a video message in which Powell directly accused the administration of using the threat of criminal prosecution to pressure the Fed to lower interest rates in line with Trump’s preference. He has clearly termed the DOJ investigation as nothing less than a head-on challenge to the Fed’s ability to operate free of political control. While defending his position, the Fed’s Chair has said that Trump’s fixation on the construction project is only a pretext for gaining leverage in a deeper conflict.
Jerome Powell has been at the Federal Reserve as Governor for more than a decade, and Trump, in his first term, appointed him as the Fed’s Chairman in 1998 for a 4-year term. Soon after Powell’s appointment as the Fed’s Chair, Trump became increasingly disappointed because he did not agree to drastically reduce the policy rate as Trump expected. After Trump’s departure, President Joe Biden reappointed Powell for a second term in 2022, which will end in May 2026, but Powell will continue as a Member of the Board of Governors until 2028.
The Fed’s independence is very crucial for financial markets, where investors mostly rely on the Fed to make policy based on economic conditions instead of political preference. Following the tussle between Trump and Powell, investors are now worried that the President would often prefer cutting rates too aggressively, giving priority to the economic boom over keeping inflation low, which in the long run could entrench elevated inflation in the economy, entailing reverse action with rapid policy rate rising.
Apprehending such dire consequences of compromising the Fed’s independence, there is strong opposition from different corners that have severely criticized the criminal investigation initiated by the DOJ against Powell. Even people from Trump’s inner circle have also raised their voices opposing the move taken against Powell. As reported in the media, Treasury Secretary Scott Bessent has told President Trump that the investigation could cause several issues for the administration. Bessent was found worried, sensing the severe impact on the financial market and complexity that could arise over the Senate confirmation process for Powell’s successor. Because many Congressmen and Senators have already said that they would oppose any Fed nominee put forward by Trump and defer the selection process till the legal matter arising over the investigation is fully resolved. If such an unfortunate situation arises at all, the whole financial system may turn chaotic.
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On January 30, 2026, President Trump announced the nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair. The role requires Senate confirmation. The announcement caps an extensive search that began in September and was spearheaded by Treasury Secretary Scott Bessent, who whittled a list of half a dozen candidates down to four finalists and presented them to the president.
Warsh worked as a White House economist in the George W. Bush administration. He is currently a visiting fellow at the Hoover Institution, a conservative-leaning think tank at Stanford University.
Warsh served as a Fed governor for five years after being nominated by President George W. Bush. He’s been considered for top economic roles in the first and second Trump administrations.
Not only U.S. policymakers but also many bankers, financial analysts, and even many central bankers across the world have expressed concern over the criminal investigation initiated by the DOJ against the Fed’s Chair. Jamie Dimon, the CEO of JPMorgan Chase Bank, has openly defended the Federal Reserve’s independence, stating that political interference would increase interest rates. Robin Vince, CEO of Bank of New York Mellon, has said that the Trump administration’s pressure on the Fed is counterproductive, and the central bank’s independence is critical for the world’s largest bond market. Many senior executives and bank mandarins have raised questions stating that losing the Fed’s independence would cause damage to American economic prospects and global economic stability.
Fed’s former Chairmen, Alan Greenspan, Ben Bernanke, and Janet Yellen have also taken the side of Powell, terming the criminal investigation as an unprecedented attempt to use prosecutorial attacks to undermine the Fed’s independence. They cautioned that the Fed’s ability to set monetary policy free from political influence is paramount not only for the U.S. financial system but also for the global economy. Central banks of major economies, including the U.K., Denmark, Switzerland, Australia, Canada, South Korea, and Brazil, have also expressed concern over the move against Powell. The Bank for International Settlements, a forum of central banks, has also taken a stand in support of Powell.
Regardless of the outcome of the criminal investigation initiated by the DOJ, the feud between President Trump and the Fed’s Chairman, Jerome Powell, is now publicly known, and it will determine in which direction the relationship between the White House and the Federal Reserve will move. Whether criminal charges against Powell will proceed and whether he will actually be indicted remain to be seen. However, the Justice Department’s criminal investigation into the Fed’s Chair has raised questions about whether the Fed's independence and neutrality will be compromised. If so, the impact will be severe and far-reaching, not only on the U.S. financial system but also on the world economy.
Fed’s former Chairmen, Alan Greenspan, Ben Bernanke, and Janet Yellen have also taken the side of Powell, terming the criminal investigation as an unprecedented attempt to use prosecutorial attacks to undermine the Fed’s independence. They cautioned that the Fed’s ability to set monetary policy free from political influence is paramount not only for the U.S. financial system but also for the global economy. Central banks of major economies, including the U.K., Denmark, Switzerland, Australia, Canada, South Korea, and Brazil, have also expressed concern over the move against Powell. The Bank for International Settlements, a forum of central banks, has also taken a stand in support of Powell.
Regardless of the outcome of the criminal investigation initiated by the DOJ, the feud between President Trump and the Fed’s Chairman, Jerome Powell, is now publicly known, and it will determine in which direction the relationship between the White House and the Federal Reserve will move. Whether criminal charges against Powell will proceed and whether he will actually be indicted remain to be seen. However, the Justice Department’s criminal investigation into the Fed’s Chair has raised questions about whether the Fed's independence and neutrality will be compromised. If so, the impact will be severe and far-reaching, not only on the U.S. financial system but also on the world economy.