Federal Reserve Chairman Jerome Powell speaks during a press conference after the Federal Open Market Committee meeting in Washington, DC on December 10, 2025.
Chip Somodevilla | Getty Images
The Justice Department’s criminal investigation into Federal Reserve Chairman Jerome Powell may seem far removed from consumer finances, but economists say it could have far-reaching implications for consumers’ wallets.
“There’s only downside for investors and consumers,” said Mark Zandi, chief economist at Moody’s.
The biggest concern, Zandi and other experts said, is that it would undermine the independence of the U.S. central bank, the Federal Reserve, from political influence.
Economists who spoke to CNBC said that if the public loses long-standing confidence in the Federal Reserve’s independence, consumers are likely to believe the U.S. economy will worsen with higher inflation and higher long-term interest rates, such as those on mortgages.
Investors are also likely to see increased volatility in the stock market, causing the value of stocks, bonds and other assets to decline.
The cumulative effect could be gradual, said Martha Gimbel, executive director and co-founder of the Yale Budget Institute.
“It’s something that happens over time,” Gimbel said. “It’s slowly eroding. The problem is that once (that faith) is eroded, it’s really, really hard to get back.”
President Donald Trump is calling for the Federal Reserve and Chairman Jerome Powell to cut key benchmark interest rates more aggressively. The Fed’s benchmarks set the amount banks charge each other for overnight loans, but they also have a ripple effect on nearly every borrowing and savings rate that Americans see every day.
Trump has publicly pressured the Fed chairman for months, even threatening to fire him.
President Trump said he knows who he will choose to replace Powell, whose term ends this year. He is widely expected to elect someone he believes warrants further rate cuts.
Powell said in a statement Sunday that the Justice Department investigation, related to the $2.5 billion renovation of the Fed’s headquarters in Washington, is another attempt by President Trump to influence the central bank’s monetary policy.
The White House and Justice Department did not respond to requests for comment.
President Trump addressed the criminal investigation into Powell in an interview with NBC News on Sunday evening, saying, “I don’t know anything about it.”
In August, President Trump also moved to fire Lisa Cook, one of the seven Fed directors. Cook filed a lawsuit to block her removal. The Supreme Court will hold oral arguments on January 21st.
“Any attack on the Fed’s independence will only mean higher interest rates, more volatility, and uncertainty for consumers in the coming years,” said Brett House, an economics professor at Columbia Business School.
Short-term relief, long-term pain relief
President Trump said keeping the federal funds rate too high would make it harder for businesses and consumers to borrow, putting the United States at an economic disadvantage compared to countries with lower interest rates.
Mark Higgins, senior vice president at Index Fund Advisors and author of “Investing in U.S. Financial History: The Past to Predict the Future,” said having a loyal Fed official who is likely to follow Mr. Trump’s marching orders could help consumers in the short term by lowering borrowing costs slightly and providing continued support for asset values such as stocks.
But the long-term impact of putting political pressure on the Fed is “very negative for consumers,” Higgins said.
He said cutting rates too soon risks making it difficult to contain inflation.
“This ultimately erodes consumer purchasing power, raises long-term borrowing costs, and undermines confidence in the Fed’s ability to stabilize prices,” he said.
There is precedent, both in the United States and internationally, that shows that these optimistic predictions are not exaggerated.
Economists say the 1970s were a wake-up call for the United States.
Zandi said the Federal Reserve’s independence at the time was “grasped” by then-President Richard Nixon, who installed his friend and economist Arthur Burns as Fed chairman.
In the run-up to the 1972 presidential election, Nixon pressured Burns to keep interest rates low and stimulate the economy.
Economists say these pressures and the accompanying monetary policy set the stage for runaway inflation. Consumer prices soared throughout the 1970s, and inflation reached approximately 15% in 1980, remaining the highest rate since World War II.
The Fed, under new guidance, eventually raised interest rates to harsh levels to control inflation, leading to the high borrowing costs of the 1980s.
“There were other forces at play, but that was one of the keys and one of the initial starting points for the high inflation at that time,” Zandi said. “That’s the path we’re headed here.”
In other countries, including Argentina, Russia, Turkey, Venezuela and Zimbabwe, Gimbel said executive branches have wrested power from their respective central banks, with dire economic consequences.
“This is not a list of countries where people go, ‘Oh, I wish our economy was more like Zimbabwe,'” she says. “This speaks to the fact that it’s really dangerous.”
Economists said sacrificing the Fed’s independence could ultimately lead to economic and fiscal consequences that are the opposite of what Mr. Trump is seeking.
Economists say mortgage rates, for example, are more tied to the yield on the 10-year U.S. Treasury.
Treasury markets tend to move at the whims of Wall Street and out of step with the Fed’s policies. Economists say that if Wall Street expects higher inflation going forward, this risk perception will likely push up Treasury yields, which in turn will lead to higher mortgage rates.
“We are concerned that the market is questioning the Fed’s ability to respond if there are signs of inflation, which could lead to higher interest rates,” Jarrett Seiberg, an analyst in TD Cowen’s Washington Research Group, said in a note Monday. “That could negatively offset President Trump’s other efforts to lower mortgage rates.”
Inflation is also “kryptonite” for existing bond investors, Zandi said. He said that as inflation rises, the net value of the bond’s income stream decreases, causing prices to fall.
Similarly, stock prices are determined by investors’ perceptions of a company’s future earnings potential. The stock market on Monday ignored news of the investigation and closed at a record high.
But Zandi said if investors perceive that short-term Fed policy means high inflation is on the horizon, stock prices could fall as inflation eats away at companies’ future earnings.
“If things continue like this, the economy will shrink significantly in the future,” he said.
