Fed Independence in the Crosshairs: Goolsbee Warns of "Disaster" Amid Powell Inquiry

The structural integrity of US monetary policy faces a new stress test as political pressure mounts on the Federal Reserve. Chicago Fed President Austan Goolsbee issued a stark warning Thursday, labeling any attempt to erode the central bank's independence a potential “disaster” for inflation control.

Political Pressure Mounts

The controversy stems from reports that Fed Chair Jerome Powell faces a Department of Justice investigation regarding cost overruns on a headquarters renovation project. However, markets are interpreting the inquiry through a political lens. Powell recently suggested the investigation could serve as a “pretext” for the administration to exert influence over interest rate decisions.

President Trump has maintained a steady stream of criticism regarding the Fed's pace of rate cuts, despite the central bank having lowered rates three times since September 2025.

The Economic Stakes

Goolsbee stood firmly behind Powell, emphasizing that history shows central banks beholden to political whims fail to control prices. “If you try to take away the independence of the central bank, inflation comes back,” Goolsbee stated.

While the Fed Chair's term expires in May 2026, Powell retains his governorship until 2028. The developing friction introduces a layer of institutional risk to the US Dollar, as global investors traditionally view the Fed's autonomy as a cornerstone of US asset stability.

Key Market Drivers

• Key Risk: Political dispute creates institutional uncertainty for the US Dollar and Fed policy.
• Timeline Watch: Jerome Powell's term expires in May 2026, governorship runs to 2028.
• Central Signal: Austan Goolsbee reiterates that independence is vital for inflation control.