Fed Chair Jerome Powell Faces US Investigation as Central Banks Rally—A Warning Sign?

The global financial system is facing an unprecedented test of central bank independence as Federal Reserve chair Jerome Powell confronts a criminal investigation while central bankers worldwide unite in defence of monetary autonomy. In a striking expression of international financial solidarity, leaders from major central banks issued a rare joint statement backing Powell after the US Department of Justice (DoJ) launched a criminal probe into his conduct.

In the statement, governors from 11 central banks across Europe, North America, Asia and Latin America said they 'stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell', stressing that the independence of their institutions is vital for economic stability and public trust. The signatories include Bank of England governor Andrew Bailey, European Central Bank president Christine Lagarde, and counterparts from Sweden, Denmark, Switzerland, Australia, Canada, South Korea and Brazil.

A Rare Global Defence of the Fed

The declaration calls central bank autonomy 'a cornerstone of price, financial and economic stability in the interest of the citizens that we serve', underlining that this is not just an internal turf issue for technocrats. The language is deliberately simple, making clear that what happens to the Fed affects inflation, jobs and borrowing costs for ordinary people.

Powell, in a rare personal statement, described the investigation as 'unprecedented action ... in the broader context of the administration's threats and ongoing pressure.' He argued that the threat of criminal charges was connected to disagreements over interest rate policy rather than any legitimate misconduct.

How a Renovation Dispute Triggered a Criminal Probe

The investigation reportedly stems from a costly renovation project at the Fed's Washington, DC, headquarters, where spiralling expenses and testimony to Congress have prompted criminal scrutiny. While the precise allegations remain opaque, Powell and his allies insist that using a criminal probe as leverage over monetary policy would represent a dangerous blend of politics and central banking.

President Donald Trump, who has repeatedly attacked Powell for not cutting rates as aggressively as he wanted, even as the Fed has moved its benchmark into the 3.75 per cent–4.00 per cent range, has publicly distanced himself from the DoJ's move. He claims he 'did not know anything' about the investigation, even as political pressure on the Fed has intensified.

Why Independence Matters for Your Money

Central bank independence anchors how markets price inflation, interest rates and long‑term risk. If investors think politicians can lean on central bankers to keep rates too low before an election or tighten to punish opponents, they will demand a higher risk premium.

That can push up borrowing costs on mortgages, business loans and government debt, feeding directly into household finances. Higher and more volatile rates hit people remortgaging, companies rolling over debt and pension funds that rely on steady income.

Bipartisan Alarm and Market Stability

Former Fed chairs and US lawmakers from both parties, including some Republicans, have warned that the Powell probe could make central bankers targets whenever their decisions annoy the White House. That raises fears that future presidents might use legal tools or public threats to shape rate paths, eroding the Fed's credibility as an inflation‑fighting authority.

For markets, the joint statement from overseas central bankers and the chorus of domestic concern draws a clear line: politicising monetary policy risks fresh instability just as economies are still dealing with inflation shocks and geopolitical tensions. Investors will factor that into how much trust they place in long‑term forecasts for inflation, growth and asset prices.

What's at Stake for Ordinary Savers and Borrowers

If central bank independence weakens, inflation is likely to become more volatile as rate decisions swing with political cycles rather than data. For households, that uncertainty can mean pricier mortgages, more expensive credit card and car loans, and bumpier pension returns as markets react to every hint of political interference.

That is why this clash is more than a bureaucratic fight in Washington. It is a test of whether central banks can keep acting as stewards of price stability, or whether interest rates will increasingly be set by whoever happens to hold power.