US Senate Republicans resist Trump’s Fed offensive, boosting chances Powell stays influential
Jerome Powell now faces a criminal probe and a political squeeze that could actually make it harder — not easier — for US President Donald Trump to reshape US monetary policy.
According to Reuters, Powell said the US Justice Department has opened a criminal investigation into whether he misled Congress about a renovation of the Federal Reserve’s Washington headquarters.
The project’s cost has risen from US$1.9bn to about US$2.5bn because of higher labour and materials costs, design changes and issues such as asbestos and lead contamination.
Trump has accused Powell of mismanagement and hinted at fraud, without presenting evidence, while Powell has defended the need to remove hazardous materials.
In an unusually direct video response described by the Boston Globe, Powell called the investigation a “pretext.”
He said “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.”
He framed the situation as a test of whether monetary policy will follow economic evidence or “political pressure or intimidation.”
At the same time, the Supreme Court is about to weigh in on how far the president can go in pushing out Fed officials.
CNBC reported that on January 21 the Court will hear a case over Trump’s attempt to fire Fed Governor Lisa Cook, after administration officials accused her of mortgage fraud tied to how she declared her primary residence.
Cook denied wrongdoing, sued to keep her job and argued that federal law allows Fed governors to be removed only “for cause.” Lower courts ordered her reinstated while the case proceeds, and the Supreme Court let her remain on the board pending arguments.
According to CNBC, Bank of America economist Aditya Bhave told clients that the Cook ruling could matter more for future policy than the identity of the next Fed chair, because if the Court backs Trump, it would “significantly” increase the odds that Powell could also be removed on the back of the Justice Department probe.
The political backlash, however, runs in the opposite direction.
In an analysis by The Washington Post reported that several Republicans in the US Senate now see the investigation as a direct threat to Fed independence.
Senate Majority Leader John Thune said the probe could “make it challenging” to confirm a replacement when Powell’s term as chair ends in May and stressed the need for the central bank to operate “free of politics.”
Senator Thom Tillis, who sits on the Senate Banking Committee, has pledged to oppose any Fed nominee until the investigation is resolved, while Senator Lisa Murkowski has called for a congressional review of the Justice Department’s actions.
With a narrow 13–11 Republican majority on the committee, Tillis siding with Democrats could deadlock any nomination.
According to the Washington Post, that resistance has already damaged the prospects of leading candidates, including top economic adviser Kevin Hassett, as some allies now say Republican anger over the Powell probe has “destroyed” his chances.
One person close to the White House told the Post that “the Senate’s not going to give Trump a Fed director he can control after he went after Powell.”
That dynamic matters because Powell’s term as chair ends in May, but his term as a Fed governor runs to 2028. Traditionally, chairs step down from the Board when their leadership term ends.
Now, as per Reuters, analysts note that Powell can stay on as a governor and remain a key voice on policy even if he loses the chair title — especially if the Senate blocks Trump’s preferred successor.
Deutsche Bank chief US economist Matthew Luzzetti wrote, according to CNBC, that the latest events increase the probability Powell will choose to remain at the Fed.
Luzzetti argued that if the administration presses ahead with a criminal case and Senate Republicans refuse to move new nominees, members of the Federal Open Market Committee could decide to keep Powell effectively in place as chair.
The central banking community has taken an unusually public stand.
Reuters reported that former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan, along with four former Treasury secretaries and other senior officials, signed a statement calling the probe “an unprecedented attempt to use prosecutorial attacks to undermine” the Fed.
They warned that this is how policy is made in “emerging markets with weak institutions,” with damaging consequences for inflation and economic performance.
Reuters also said top central bankers from Europe, the UK, Canada, South Korea and elsewhere issued a separate statement expressing themselves “in full solidarity with the Federal Reserve System and its chair.”
For markets, the immediate pricing has been restrained but telling.
According to CNBC, Charles Schwab’s Kevin Gordon noted that the initial reaction — US$ down, equities down, bonds down — hints at how investors might digest ongoing political shocks to Fed independence.
CME Group data cited by CNBC show traders largely expect no move at the Jan. 27–28 meeting, with the next rate cut priced around June, while Reuters reported that several voting regional Fed presidents still oppose further near‑term easing despite the pressure from Washington.
In short, as reported by Reuters, the administration’s push to tighten control over the Fed has exposed a legal and political “tripwire.”
Instead of guaranteeing a more compliant central bank, it may entrench resistance in Congress, galvanize global support for Powell and increase the odds that he — or at least his approach to independence — outlasts the current fight.
