An unprecedented situation is unfolding in which the head of the U.S. central bank is directly confronting the president. This clash is not over the central bank's core function of monetary policy, but rather over allegations of "misuse of federal funds" at the central bank—an extraordinary development.

Federal Reserve Chair Jerome Powell, who is set to step down in May, has taken the unprecedented step of publicly confronting President Donald Trump via video. Concerns are rising—even within the ruling Republican Party—that the conflict between the federal government and the Fed chair could have negative repercussions for the U.S. economy and global financial markets.

The situation is drawing close attention.◇ DOJ Launches Probe Over 'Fed Headquarters Renovation' as Pretext... Powell Retorts: "This Is Just an Excuse "The trigger for the conflict came when Powell publicly revealed and sharply criticized the Trump administration's moves toward criminal prosecution against him. In a video released on the 11th, Powell stated: "On the 9th, I received a grand jury subpoena and threats of criminal indictment from the Department of Justice related to my congressional testimony last June on the Fed headquarters renovation.

"This marks the start of an investigation into the costs of renovating the Fed headquarters. It is the very issue President Trump has repeatedly highlighted in his criticisms of Powell. Last July, in a rare move for a sitting president, Trump personally visited the renovation site at the Fed headquarters in Washington, D.C.At the time, Trump remarked, "It seems the budget is around $3.1 billion. It went up a bit. Actually, it went up a lot," pointing out the cost overrun from an original $2.7 billion to $3.1 billion.

A DOJ spokesperson told The Wall Street Journal on the 12th that Attorney General Pam Bondi had instructed prosecutors to "prioritize investigating all cases involving abuse of taxpayer money. "However, Powell views the headquarters renovation cost issue as merely a pretext. In his view, the real motive behind it is "retaliation" and "pressure" for resisting the Trump administration's intense demands for interest rate cuts. Powell stated, "This unprecedented action must be seen in the context of the administration's threats and ongoing pressure," adding, "This is an excuse.

"He further argued, "The threat of criminal indictment stems from the fact that the Fed has set interest rates in the direction it judges best serves the public interest, rather than following the president's preferences."Since taking office, President Trump has rejected the values of "Fed independence and monetary policy neutrality," openly pressuring for aggressive rate cuts. He has argued that the benchmark rate should drop to 1%, but Powell has steadfastly followed his own path without yielding. During Trump's second term, the Fed has cut rates three times by a total of 0.75 percentage points, bringing the current range to 3.50–3.75%.Trump has consistently called Powell "Mr. Too Late." Just as he labeled former President Joe Biden "Sleepy," he has repeatedly mocked Powell.

It is known that Trump once considered firing Powell. Even while searching for a successor, he did not refrain from harsh language, calling him "stupid" and similar insults. From Trump's perspective, the DOJ's moves toward indicting Powell also serve as a message to the next Fed chair: "Follow my views."In a Wall Street Journal interview last month, Trump emphasized that "regardless of who becomes Fed chair, my voice must be heard in monetary policy decisions.

"Meanwhile, criticisms are growing that the DOJ—led by Attorney General Pam Bondi, a former personal lawyer to Trump—has been privatized and weaponized by the president, raising questions about the fairness and impartiality of DOJ operations. Since the launch of Trump's second term, the DOJ has sparked controversy by pursuing retaliatory investigations and indictments against figures seen as Trump's political enemies, including former FBI Director James Comey, New York Attorney General Letitia James, and former National Security Adviser John Bolton.◇ Trump's Overt Bid to Control the Fed Sparks Concern Even Among Some Republicans... Possibility of Hardliners' Overreach Trump has not only pressured on rates but has also deeply intervened in Fed personnel matters using his authority—another form of pressure on Powell.

A representative case is the abrupt notification of removal for "hawkish" Fed Governor Lisa Cook over alleged mortgage fraud raised by the Trump administration. Cook challenged it in court and remains in her position for now. The vacancy left by "hawkish" former Governor Adriana Kugler, who resigned early, was filled by ally Stephen Miran. The next chair is also highly likely to be a "dovish" figure from among Trump's close associates.

In this context, the launch of the probe into Powell can be interpreted as part of efforts to pressure the Fed for faster and larger rate cuts while reshaping its personnel composition. Of the current seven Fed governors, three were appointed by Trump. Powell's chair term ends in May, but his governor term continues until early 2028. Trump appears to want him to resign from the board. The Federal Open Market Committee (FOMC), which sets interest rates, consists of the seven governors plus five regional Fed bank presidents (New York is fixed). Trump wants to fill as many FOMC seats as possible with people who align with his push for rate cuts.

However, Powell's public resistance to the "judicial threats" against him can be read as a declaration that he will not yield to Trump's pressure to step down. Powell stated, "Public service sometimes requires standing firm against threats," adding, "I will continue to carry out the duties entrusted to me by the Senate—with integrity and dedication to serving the American people."News of the probe into Powell has triggered backlash, including from some Republican lawmakers and Treasury Secretary Scott Bessent.Senate Banking Committee member Thom Tillis (R-NC) posted on X (formerly Twitter) questioning the background of the DOJ probe and stating he would oppose confirmation for any Fed nominees—including the next chair—"until this legal matter is fully resolved."Fellow Banking Committee member Kevin Cramer (R-ND) also defended Powell that day, saying he does "not believe he is a criminal."

The Senate Banking Committee handles confirmation for the next Fed chair. If these Republican senators withhold consent, Trump's plans will inevitably face setbacks. Moreover, recent defections in the Republican Party on issues like additional military action restrictions against Venezuela and extending Obamacare (the Affordable Care Act) are likely to add significant pressure on Trump.

Treasury Secretary Scott Bessent reportedly told Trump that the Powell probe has "made a mess" and could negatively impact financial markets, according to online outlet Axios citing sources.If the controversy over the Powell probe persists, some speculate it could delay Trump's expected imminent announcement of the next Fed chair nominee. Additionally, although Trump claimed in an NBC interview on the 11th that he knew nothing about the Powell probe, the possibility cannot be ruled out that this was an "overreach" by hardliners within the administration.