The Trump administration’s surprise criminal investigation against Fed Chair Jerome Powell has worried Trump aides, who fear that the bond market will get spooked.
The Justice Department’s investigation centers on whether Powell, a constant thorn in Trump’s economic ambitions in his second term, misled Congress over renovations at the central bank’s headquarters.
The probe, which the president has distanced himself from, has thrown the administration into damage-control mode, according to five people familiar with the reaction who spoke to Politico.
The inquiry blindsided many aides and has scrambled plans laid by Treasury Secretary Scott Bessent, who had spent months working toward a smooth Federal Reserve transition that would not rankle investors.
However, it appears Trump has not learned his lesson despite bond-market turmoil being a key factor that influenced his partial pause on tariffs last year.
The probe has reignited concerns about the independence of the central bank at a sensitive moment, with Powell’s term as chair ending in May and Senate Republicans expected to play a key role in confirming his successor.
Powell sharpened those concerns by issuing an unusually direct statement framing the investigation as an effort to pressure the Fed to lower borrowing costs—something he has continually refused to do, despite this rankling Trump.
“This feud between Powell and the White House is, obviously, not good for markets,” said Stephen Moore, a former adviser to Trump who remains close to the administration. While Moore criticized Powell’s handling of the renovation, he added, “Now is not the time to be bringing a criminal investigation against the Fed chairman.”
Privately, some White House officials see the episode as radioactive. One of the five people familiar said aides and allies are “freaked out” that threatening Powell’s job security could unsettle the bond market, especially after recent signs of investor sensitivity to political shocks.
White House press secretary Karoline Leavitt said the president did not direct the Justice Department to open the investigation.
Beyond the immediate backlash, officials worry the move could backfire strategically. Powell could choose to remain on the Fed’s seven-member board after stepping down as chair, denying the president an opening to install an ally. Bessent said last week that the president could announce a replacement before or after an upcoming trip to Davos, Switzerland.
The episode has also revived internal finger-pointing. Some officials and allies are again calling for the removal of Federal Housing Finance Agency Director Bill Pulte, whom they suspect of instigating the inquiry and being responsible for other controversial economic messaging, including a proposal floated by the president for a 50-year mortgage.
Bessent previously threatened to punch Pulte, who has Trump’s ear owing to them being golf buddies, at a public event, according to people familiar with the matter.
“The president has already had his doubts about Pulte, and if this doesn’t push him over the edge, I don’t know what will,” one person said. “Trump needs to save himself and the country from Bill Pulte.”
Pulte, who spent much of last year attacking Powell on social media and television, recently urged Trump to remove the Fed chair, even bringing “wanted” posters of Powell to make his case, according to three people familiar with the matter.
White House Communications Director Steve Cheung rejected that characterization, calling Pulte “one of the President’s most loyal and important advisors.” Pulte denied any role in the investigation, too.
So far, markets have largely shrugged. Stocks recovered from early losses, and long-term government debt yields edged slightly higher.
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