A Simple Explanation of President Trump's Attack on the U.S. Federal Reserve

On Sunday night, January 11th, Federal Reserve Chairman Powell just announced that he is under investigation by Trump's Department of Justice. Trump is trying to coerce the Federal Reserve into lowering interest rates, and he's using any means necessary to do it.

Click here to listen to a statement from Chairman Powell, which I copied and pasted below.

"Good evening.

On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June. That testimony concerned in part a multi-year project to renovate historic Federal Reserve office buildings.

I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure.

This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.

This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.

I have served at the Federal Reserve under four administrations, Republicans and Democrats alike. In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.

Thank you."

The Importance of An Independent Federal Reserve

An independent Federal Reserve is essential because it allows monetary policy decisions to be guided by economic evidence and long-term stability rather than short-term political pressures.

When interest rates, inflation-control tools, and financial-stability tools are not insulated from election cycles and partisan agendas, the Fed cannot act decisively to prevent overheating, rein in inflation, or support the economy during downturns, even when those actions are unpopular.

The Federal Reserve Was Pushed Into a Corner

Trump’s tariffs pushed the Federal Reserve into a corner, creating a policy dilemma in which every option carried economic risk.

Tariffs act like a tax on imports, raising costs for businesses and consumers. That pushes inflation up, which normally argues for higher interest rates.

But at the same time, tariffs slow economic growth by disrupting supply chains, reducing business investment, and provoking retaliation from trading partners—conditions that usually call for lower rates.

The Fed was left facing the worst kind of tradeoff: tighten policy to fight tariff-driven inflation and risk choking off growth, or ease policy to support the economy and risk letting inflation expectations rise.

As you can see, before the Tariffs were announced in April, the Federal Reserve neared it's target inflation rate of 2%, and it reversed course immediately after Trump's tariff announcement.

The Venezuela Irony

Hugo Chávez gradually eroded Venezuela’s central bank's independence in the mid-2000s, leading to soaring inflation that later turned into hyperinflation, chronic shortages, capital flight, and a breakdown of trust in Venezuela’s financial institutions, showing how politicizing a central bank can quickly destabilize an entire economy.

Maduro eventually became the President of Venezuela and continued this policy until being apprehended by the U.S. military under Trump's orders.

What's Next?

The December jobs report shows that 2025 was the worst year for hiring since Trump’s last term. And when compared to the eight largest stock markets in the world, the United States performed the worst under Trump in 2025.

Does that mean the stock market will tank in 2026? Nobody knows. What we do know for certain is this:

1. Never make investment trades emotionally. Consult an expert bound to put your interests ahead of their own. Read How to Choose a Financial Planner for details.

2. It is always important to have at least 3-6 months of savings set aside for emergencies.

Join my subscribers for ideas to manage money and the home as a team.