DOJ criminal probe highlights risk of Fed losing independence - a central bank scholar explains what's at stake

[marmar]

DOJ criminal probe highlights risk of Fed losing independence – a central bank scholar explains what’s at stake
Published: January 12, 2026 8:35pm EST Updated: January 13, 2026 10:03am EST

Cristina Bodea
Professor of Political Science, Michigan State University

The Department of Justice’s decision to open a criminal investigation into Federal Reserve chair Jerome Powell has reignited concern over the independence of the central bank.

In unusually blunt remarks, Powell described the unprecedented probe as part of a political attack by the White House over the Fed’s refusal to drastically cut interest rates, as President Donald Trump has long advocated.

But how unique are such apparent attempts to undermine the central bank’s authority? And what would be the consequences of chipping away at Fed independence? To understand what’s at stake, The Conversation turned to Cristina Bodea, a Michigan State University professor who has been studying central bank best practices for more than two decades.

(The Conversation) It is unique in the sense that we haven’t seen a Fed chair criminally investigated ever.

But if we go back in history to the Nixon and Reagan years, presidents have put a lot of pressure on Fed chairs when economic conditions were bad – more precisely, there was high unemployment and high inflation.

....(snip)....

Why are central banks independent, and what is at stake?

Independence comes in two forms: legal and in practice. In the recent past, the laws governing central banks have tended to favor an arms-length relationship in which experts in these institutions look at the economic data and make interest rate decisions based on their mandate. If their mandate includes low inflation, they’re supposed to adjust interest rates based on their data so that they can achieve their goal in the medium term.

Legal independence means that the law governing the institution allows them to do this without politicians interfering in day-to-day operations. This does not mean that the institution is not accountable. The Fed is accountable to Congress, and the people who run the Fed are appointed by the president and voted on by the Senate.

....(snip)....

What are the stakes here for the American consumer?

The concern is inflation. Currently, data is ambiguous about the right monetary policy, and there are debates within the Fed about the right course of action. But there is no full-blown financial crisis or unemployment crisis.

Interest rates should not be lowered by 3 percentage points under these circumstances, as Trump has urged. Fairly drastic measures should be reserved for fairly drastic circumstances, and I don’t think we are in fairly drastic circumstances. If low interest rates are employed at this moment, you’re basically using all your ammunition on a moment that doesn’t seem to warrant using it. .........................(more)

https://theconversation.com/doj-criminal-probe-highlights-risk-of-fed-losing-independence-a-central-bank-scholar-explains-whats-at-stake-273314

[Norrrm]

1. DOJ criminal probe? What a laugh! Trump's personal legal team.