The conflict between Federal Reserve Chairman Powell and the Trump administration in the United States has become completely public. Facing a criminal investigation launched by the Department of Justice, Powell, who has always chosen to avoid political disputes, rarely fought back hard. This game around interest rate policy not only affects the direction of U.S. monetary policy, but also strikes directly at the cornerstone of the global financial system, the core of central bank independence, and has attracted great attention from central banks, markets and business circles around the world.

Investigation Storm: An “Excuse-like” Attack on the Federal Reserve’s Independence

The trigger for this turmoil was the criminal investigation launched by the U.S. Department of Justice into Powell. The Justice Department issued a grand jury subpoena to Powell and threatened criminal prosecution. The ostensible reason for the investigation was Powell's testimony to Congress last June on the Federal Reserve headquarters renovation project, but Powell himself directly exposed this "cover." In a video statement released late Sunday, Powell said bluntly that the threat of criminal charges was not about testimony or building renovations, but the fundamental reason was the Fed's insistence on setting interest rates based on public interest assessments rather than following the president's preferences.

In fact, Trump has been calling on the Federal Reserve to significantly cut interest rates over the past year to improve housing affordability and reduce government borrowing costs, but this appeal runs counter to the Federal Reserve's mission of balancing inflation and employment. Cutting interest rates too quickly may trigger an inflation crisis, which is a red line that Powell and the Fed's policy-making team are unwilling to touch. The Trump administration's attitude toward Powell has already escalated from public criticism to legal pressure.

Previously, Trump only used his influence to criticize Powell and hoped for his resignation. Now, the government is using federal judicial power against a public official it is trying to remove, an action seen as a direct challenge to the Fed's independence. Powell may have previously considered leaving when his term as chairman ends in May this year, but this unprecedented legal attack may instead encourage him to stay in office until the end of his term as a director in 2028. He wants to use this to deny Trump the opportunity to nominate a successor while waiting for the investigation to settle.

Global solidarity: Central banks from many countries join forces to defend the principle of central bank independence

The U.S. government's intervention in the Federal Reserve has aroused the vigilance of central banks around the world. Central bankers around the world are working on drafting a joint statement after the Trump administration sharply escalated its pressure campaign, according to people familiar with the matter. The statement is expected to be issued in the name of the Bank for International Settlements and open to all central banks for signature as a way of expressing solidarity with Powell. Affected by time zone differences, central bank governors of various countries need time to negotiate the wording, and the document may be officially released as early as Tuesday.

The first to make a public statement was Bank of Canada Governor Steve McCallum. He issued a statement on Monday expressing "full support" for Powell, praising Powell for "demonstrating the highest professional standards in public service" and emphasizing that he led the Federal Reserve in a difficult environment to formulate monetary policy based on evidence rather than political factors. European Central Bank President Christine Lagarde and other central bank governors from many countries have also repeatedly emphasized the importance of monetary policy independence and expressed support and appreciation for Powell's work.

Faced with doubts from the outside world, the Trump administration tried to distance itself from the relationship. In an interview, Trump denied that he knew about the Justice Department investigation into the Federal Reserve. White House press secretary Carolyn Leavitt also said the president did not order the investigation and defended his right to criticize the Fed. However, this excuse cannot calm the outside world's concerns about political interference in the central bank. After all, the Federal Reserve and the US dollar are the two pillars of the global financial system. Any move to weaken their independence will have a global chain reaction.

Markets and Enterprises: The Complex Mentality Behind Silence

Different from the clear attitude of global central banks, the reaction of the US financial market and business community appears to be quite restrained. After the announcement of the investigation, the market performance was dull on Monday, with many investors choosing to wait and see, waiting for further developments. They need to judge the real impact of the conflict on the economy and whether the Fed's independence is still safeguarded. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, analyzed that the current government and central bank seem to be in a state of open war, which is a situation that Powell and Finance Minister Bessant are trying to avoid. Subsequent developments will depend on the severity of the responses from both parties, as well as whether the Fed's independence still has credibility in the market, and whether Bessant or congressional Republicans will step in to mediate.

The attitude of the corporate world is even more intriguing. A survey by Jeffrey Sonnenfeld, founder of the Yale University CEO Leadership Institute, showed that 71% of the 200 CEOs surveyed believed that the Trump administration had eroded the independence of the Federal Reserve, and 80% said that Trump’s pressure to cut interest rates was not in the best interests of the United States. But publicly, no major business, trade group or CEO has come forward to express concern.

Behind this "private shock and public silence" is the company's fear of Trump's revenge. Sonnenfeld cited Harley-Davidson as an example. In 2018, the company shifted part of its production in response to EU tariffs, which was deemed "personal" by Trump. It was then publicly boycotted by Trump, and the company's board of directors eventually fired the CEO. The lessons learned from the past have made business leaders afraid to speak out alone. They prefer to influence Trump through personal relationships and secret channels. In addition, some companies and market participants themselves agree with the low interest rate policy and are willing to gamble on the country's long-term economic stability for short-term interests. This is one of the reasons why the alarm is weak.

Congressional wrestling and future concerns: The Fed’s independence faces a long-term test

At the congressional level, voices supporting Powell have emerged within the Republican Party. North Carolina Republican Senator Thom Tillis has made it clear he will seek to block all of Trump's central bank picks on Fed nominations. Alaska Sen. Lisa Murkowski also criticized the administration's investigation as "nothing more than an attempt at coercion" and supported Tillis' effort to block the nomination.

This move will directly affect the confirmation process of the next Fed Chairman. As Powell's legal troubles continue, the future Fed chair will not only have to deal with potential threats to the administration's interest rate policy, but also shed his label as a White House yes-man. Even if the nomination process is launched, it will be shrouded in Powell's scandal and face questions from many parties. From a longer-term perspective, the core of this conflict is the battle over the boundaries between political power and central bank independence.

There is a general consensus that an independent central bank is an important cornerstone of developed economies. The lessons of Türkiye, Argentina and other countries have already proven that administrative power to interfere with monetary authorities will bring disastrous consequences. As the cornerstone of global finance, the Fed's independence has been weakened, which means that monetary policymaking may be subject to political demands rather than inflation and economic growth goals. This will not only erode market trust and hinder investment, but also undermine the stability of the global financial system.