The Oval Office’s plan to force the Fed into submission is unlikely to work, Wall Street believes. In fact, they fear it may backfire so spectacularly that interest rate cuts which would have happened under Powell will be nixed as the central bank asserts its independence.

Over the weekend, Fed chairman Jerome Powell confirmed the Department of Justice had served the Federal Reserve with grand jury subpoenas relating to his Senate Banking Testimony on the renovation of Fed buildings.

It was a move that realists may have seen coming—after all, Trump has already levelled legal threats against other members of the rate-setting Federal Open Market Committee (FOMC)—but is unprecedented nonetheless. It comes after a year of lobbying by Trump, who wants the FOMC to cut the base rate to foster economic activity and reduce borrowing costs, regardless of the inflation risk.

Throughout 2025, Powell attempted to avoid the political melee, even when Trump threatened to fire him multiple times. The FOMC did deliver rate cuts, though clearly not quickly enough for Trump. The resulting escalation from the White House is further proof of political intervention into the legally independent Fed, analysts and investors agree.

However, Trump may not have banked on the fact that the FOMC (even under a new Fed chair this year) might want to make a point of that independence, and go to lengths to demonstrate it. As UBS’s Paul Donovan told clients this morning: “Any nominee from U.S. President Trump is likely to have to place additional emphasis on their independence to try and prove they are above politics. This might impact future policy decisions.”

As Bernard Yaros, lead U.S. economist for Oxford Economics, observed in a note yesterday: “The criminal investigation … could even backfire by making officials more reluctant to cut rates in the coming months and years.”

But there’s also another unexpected fallout which Trump is unlikely to enjoy: Powell may choose to stay on as a bastion of independence after a new Fed chairman is nominated. While his time as Fed chairman expires this year, his term on the Board of Governors does not expire until 2028. “If Powell was looking for a reason to stay on as a Governor … this could be one,” noted Deutsche Bank’s Jim Reid this morning. “It’s very unusual to stay on but [former Fed Chairman Marriner] Eccles did so in 1948 for 3.5 years to help protect and secure Fed independence after the Treasury were trying to fund large post war time debts.”

An unpopular plan

Investors might have hoped Trump had learned his lesson when it came to meddling with the Fed: When he threatened to fire Powell earlier this year, markets shifted uneasily, and the Republican president was forced into a swift U-turn.

According to reports, the action taken this week hasn’t been hugely popular within the White House. Axios reported today, citing two anonymous sources, that Treasury Secretary Scott Bessent told the president that the investigation “made a mess,” which could be bad for financial markets.

Even if the chips fall in favor of President Trump and he successfully ousts both Powell and Governor Lisa Cook, as well as managing to insert a dovish Fed chairman at the head of the table, there’s still an economic fallout to be dealt with. This could include a weaker dollar, a steeper yield curve, and higher long-term inflation expectations, according to Thierry Wizman, global FX and rates strategist at Macquarie Group. If Trump succeeds, “it may result in a Fed that will be more pliant with respect to those White House wishes, especially if Congress concedes its role. That means a Fed that keeps interest rates lower than they otherwise would be.”

This means that inflation, held in check by higher rates, may increase in the longer view and, as such, “nominal assets, such as fixed-coupon long-term bonds, will look less attractive as stores of real value.”

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The only surprising quality regarding President Trump unleashing federal investigators to prepare potential prosecution criminal charges against the highly respected Federal Reserve Chairman Jay Powell — a Trump appointee himself — is that anyone is surprised by this news.

Financial markets initially dropped before rebounding as investors blew off Trump’s Justice Department move as the flailing bluster of a lame duck and a fissure opened in the GOP, with open concern about the sacred independence of the DOJ as well as of the Federal Reserve.

For example, prominent Republican Sen. Thom Tillis, of the Senate Banking Committee, asserted that “It is now the independence and credibility of the Department of Justice that are in question.”

Similarly, Republican Rep. French Hill, chairman of the House Financial Services committee, called this investigation “an unnecessary distraction that could undermine this Administration and sound monetary decisions.”

Even Trump’s own Treasury Secretary, Scott Bessent, challenged Trump on his “revenge probe” of Powell.

The sequential, dramatic waves of prosecutions against such officials as Trump’s former National Security Advisor John Bolton, former FBI chiefs James Comey and Christopher Wray, New York Attorney General Letitia James, former CIA chief John Brennan, Federal Reserve Governor Lisa Cook,  former Homeland Security official Miles Taylor, Sen. Adam Schiff, cybersecurity chief Christoper Krebs, and former special counsel Jack Smith, among others, is alarming. As Trump’s Truth Social messaging shows, he has personally directed such prosecutions, showing a weaponization of the judiciary against perceived political enemies. Some critics see this as the impulsive emotional fits of the crazed Queen of Hearts from Alice in Wonderland, screaming “off with their heads” regarding any who displease her. However, what is missed is that these moves are far more deliberate actions, part of a larger tactical pattern.

The charges against Powell — that he lied to Congress due to building renovation costs overruns — is ludicrous and such charges will surely be dismissed in court. The alleged 40% cost overruns may be true but they are not criminal. let alone reckless. The actual Fed renovations are costing $2.5 billion, which is 40% overbudget due to cost inflation, but Trump admitted last month that his own East Wing demolition and construction of a new White House ballroom has ballooned to 200% over budget. This is truly stunning as this project was only six months ago and Trump should know how to estimate construction accurately as a builder himself. 

These costs are not out of line, given that this is the first comprehensive renovation in the 90 years since the Marriner Eccles building was built in 1937.  By contrast, the nearby Hart, Russell, and Dirksen Senate Office buildings and the Cannon House Office building have continuously undergone massive renovations over the decades. 

Plus, regardless of the nature of these common cost overruns, not a penny of this is from U.S. taxpayer funds. The Fed is funding these renovations out of its own budget as the Fed is entirely operationally self-sufficient, funded primarily by its own investment income on the U.S. Treasury bonds it owns. 

Trump’s attempted ambush of Powell on national TV this summer, during a tour of the construction site, backfired, with Powell correcting and embarrassing him. Trump’s false statement that the renovations had ballooned to $3.1 billion was shown to incorrectly include a separate, already-completed renovation of a different building.

On the surface, Trump is angry that the Federal Reserve is not cutting rates faster and further and that is how chairman Powell explains why he is being targeted as he complained: “This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. … Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

Fully 71% of the 200 CEOs at my recent Yale CEO Summit complained that Trump had already eroded the independence of the Federal Reserve via actions from his administration, and 81% stated that they prefer Governor Chris Waller as Powell’s prospective successor when the chairman’s term ends this spring, presuming he will fortify Fed independence. 

So, if this lawfare attack is not an impulsive tantrum, what is the strategic rationale? Like Trump’s false assertion this month that the attack on Venezuela was driven by the advance interest of U.S. oil producers, which they soundly denied, claiming Venezuela was “uninvestable,” this was more of Trump’s diversionary maneuvering. In my new book, Trump’s Ten Commandments (Simon & Schuster), I label this his “Wall of Sound” tactic to change the public narrative from his faltering polling with Gallup’s end of year national survey reporting only 36% of the nation approving and the Economist/YouGov  finding that 57% disapprove. Even over half of MAGA/Trump voters don’t support Trump on his handling of the Epstein files and affordability and healthcare. His ICE/immigration tactics have plummeted 30% in recent polling. 

But Trump has succeeded in his mission of getting every media outlet to drop their 24/7 hammering on his weaknesses on salient domestic policies. Plus, he is pulling three other levers in this Fed/Powell diversionary maneuver — he invokes his “hub & spoke” leadership model where there are no independent agencies of control, his crushing of adversaries with selective retribution, and his deft manipulation of the classic mass communication propaganda tool “sleeper effect” where a false message is repeated in an unrelenting determined way and eventually gets traction. 

These are four of the 10 tools in Trump’s tool kit that I label his “Ten Commandments.” He selects them deliberately and not truly impulsively despite his bravado. Trump is far from tone deaf or foolish. He is dumb as a fox, but even foxes, generally symbol of intelligence and slyness, become victims of their own presumed cleverness. 

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

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One of the hottest topics in the tech sector is a proposed wealth tax in California aimed at billionaires, and the debate is yielding some insights into how they live.

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