GET UP TO SPEED
There’s a high level of interest in what happens next. The US Justice Department is undertaking a criminal investigation into Federal Reserve Chair Jerome Powell, following a year of sparring between Powell and US President Donald Trump over interest rates. On Sunday night, Powell went public with his response to “this unprecedented action.” He called questions about the costs of the Fed’s headquarters renovation and Powell’s testimony to Congress “pretexts” for the administration’s ongoing pressure campaign. “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 said.
How will these developments affect US and global markets, and what future actions should we expect from the White House and the Fed? We turned to our chair of international economics to make sense of it all.
TODAY’S EXPERT REACTION BROUGHT TO YOU BY
- Josh Lipsky (@joshualipsky): Chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and former International Monetary Fund advisor
- The clash between president and Fed chair “was a shocking escalation,” Josh tells us. “Until now, Powell had done everything possible to avoid an outright confrontation. That is what made his comments last night so powerful.”
- Trump would prefer lower interest rates to boost consumer spending, but the Powell-led Fed, Josh says, has “remained cautious [about reducing rates], wary of sticky inflation and the potential inflationary impact of tariffs.”
- “What is particularly surprising is the timing” of the Powell probe, Josh says, since his term as chairman expires in May, and the Fed has been cutting rates gradually in recent months.
- “Without having to fire the Fed chair, Trump was already getting the policy outcome he wanted—and would soon have the opportunity to appoint a new ally,” Josh tells us. Still, he predicts that neither the White House nor the Fed will back down.
Sign up to receive rapid insight in your inbox from Atlantic Council experts on global events as they unfold.
- On Monday, US and global markets were basically flat. Josh thinks this is likely due to the relatively limited economic fallout from Trump’s “Liberation Day” tariffs and other major events such as the US strike on Iran’s nuclear facilities.
- “Markets are choosing to wait and see rather than overreact, and they have data from Trump’s first year that suggests this strategy has worked,” he explains.
- But Josh says this dynamic “creates a strange tension: Markets believe they can constrain the president through negative reactions, and therefore often don’t react [to Trump’s economic actions]—while the president, seeing little immediate financial cost, believes he can continue to push forward.”
- Since Sunday’s announcement, two US Senate Republicans have pledged to block Trump’s Fed nominees until the case is resolved. Josh predicts it will be hard to confirm a new chair while the case is pending, so it’s possible Powell could continue as temporary chair past his scheduled departure—not the result Trump desires.
- While all this drama is unfolding, the US Supreme Court will hear arguments this week on the case of Trump’s attempted firing of Fed governor Lisa Cook over allegations of mortgage fraud. And as soon as Wednesday, the court will decide the fate of many of Trump’s tariffs, potentially putting the president at odds with the Fed and the high court at the same time.
- “Even Wall Street will not be able to ignore” the impact of a Supreme Court tariff decision, Josh tells us. “While markets are hoping that year two looks like year one, Trump is signaling—from Venezuela to the Federal Reserve—that this time is different.”
- Global central bankers and finance ministers are watching with concern, Josh reports, given the Fed’s role as a “global model of an independent central bank” that makes decisions for the sake of economic health rather than as a result of political pressure.
- “This is not academic,” Josh says. The Fed “has repeatedly stabilized both the US and global economy in moments of crisis,” and “independent central banks are proven to deliver stronger growth, more jobs, and better economic outcomes. Trillions of dollars and millions of jobs are at stake.”
Further reading
Dollar Dominance
Economy & Business
Macroeconomics
Rule of Law
United States and Canada
Image: US Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee, at the US Federal Reserve in Washington, DC on December 10, 2025. (REUTERS/Kevin Lamarque)
