Fed's Kashkari: Trump Moves on Fed 'About Monetary Policy'

Federal Reserve President Neel Kashkari said the Trump administration's actions against the central bank in the past year were really about monetary policy. He made the comments in an interview with the New York Times, defending Fed Chair Jerome Powell against administration pressure. Kashkari emphasized the importance of Fed independence in maintaining a stable economy.

The Trump administration served the Fed with grand jury subpoenas, prompting a strong response from Powell. In a video message, Powell accused the administration of using legal threats to pressure the central bank into lowering interest rates. He called the threats "pretexts" for a broader effort to influence monetary policy decisions.

Kashkari stated that the situation provided an opportunity to explain the significance of Fed independence to the public. The escalation in tensions has drawn criticism from lawmakers and global economic policymakers. Even Republican allies of Trump have warned that the administration's actions risk destabilizing financial markets.

Why Did This Happen?

The Justice Department's investigation into Powell's testimony over the Fed's headquarters renovation is seen as an attempt to exert control over monetary policy. Trump has long criticized the Fed for not cutting rates aggressively enough. Kashkari noted that the administration's actions were an "escalation" over monetary policy disagreements.

The Fed has faced pressure from Trump since he resumed office in January 2026. He has criticized the Fed for its rate policies and has threatened to fire Powell, despite legal protections for the Fed chair. Kashkari and other Fed officials have defended the institution's autonomy and policy decisions.

How Did Markets React?

Financial markets have remained relatively calm in response to the investigation. Some analysts attribute this to bipartisan support for Powell and the central bank's independence. However, gold prices rose sharply as investors considered the implications of Trump's actions on monetary policy.

The market reaction indicates a "comfort" with the Fed's independence, despite the administration's aggressive moves. Investors may be reassured by the support from lawmakers and the central bank's commitment to its policy goals. The selloff in equity markets has not been as severe as initially feared.

What Are Analysts Watching Next?

Analysts are closely monitoring the impact of the administration's actions on Fed independence and market stability. The investigation could have long-term consequences for the central bank's credibility and its ability to manage inflation. Some economists warn that political pressure on the Fed could lead to higher inflation and increased economic uncertainty.

The bipartisan backlash to the administration's moves has raised questions about the future of Fed leadership. Senator Thom Tillis has vowed to block Trump's nominees to the Fed until the legal issues are resolved. This could complicate the process of appointing a new chair to replace Powell in May.

The Trump administration has not yet responded to the widespread criticism of its actions against the Fed. However, the administration's ongoing pressure on the central bank suggests that the political battle over monetary policy is far from over. The outcome of this conflict could shape the future direction of U.S. economic policy and financial markets.

Fitch Ratings has highlighted the importance of Fed independence to the U.S. sovereign rating. The credit rating agency views the central bank's autonomy as a key factor in maintaining economic stability. Any further erosion of this independence could have broader implications for investor confidence and the U.S. economy.