In a week marked by political drama and market jitters, the independence of the U.S. Federal Reserve is facing its most significant test in decades. On August 20, 2025, the financial world was rattled when news broke that Federal Reserve Chair Jerome Powell and Governor Lisa Cook had both been referred to the Department of Justice for possible criminal investigation. The referrals, driven by allies of former President Donald Trump, allege that Powell misled Congress and that Cook committed mortgage fraud by claiming two properties as her principal residence. The market’s reaction was swift: bond yields dipped, the dollar slipped—if only briefly—and gold prices climbed nearly 1% as investors digested the possible implications for America’s monetary policy.
President Trump wasted no time amplifying the pressure. Using his Truth Social platform, he demanded, “Cook must resign, now!!!” The allegations against Cook, which surfaced from Federal Housing Finance Agency Director William Pulte, focus on mortgages she secured in 2021 for properties in Michigan and Georgia—before she joined the Fed. According to Reuters, Cook’s financial disclosures show she obtained three mortgages in 2021 with rates of 2.5%, 3.25%, and 2.875%. These figures are in line with the market averages for 30-year mortgages that year, which hovered between 2.9% and 3.3%, as reported by the Mortgage Bankers Association. Nevertheless, Pulte claims Cook improperly designated both homes as her primary residence to secure those favorable rates.
For her part, Lisa Cook is standing firm. In a statement provided to Reuters, she declared, “I have no intention of being bullied to step down,” adding that she would “take any questions about my financial history seriously” and provide accurate information to address legitimate concerns. The Wall Street Journal, citing unnamed sources, reported that Trump has even considered firing Cook, who holds the distinction of being the first Black woman to serve on the Federal Reserve Board. However, legal experts and Fed watchers note that governors are statutorily protected from removal by the president over policy disagreements—a safeguard designed to shield the central bank from political interference.
The Justice Department, now under Attorney General Pam Bondi, has confirmed it is investigating the allegations against Cook at Pulte’s request. A department official told Reuters they are taking the matter “very seriously.” This action comes at a time when the Fed is already under intense scrutiny, and questions about its independence have reached fever pitch.
Jerome Powell, meanwhile, is preparing for his highly anticipated speech at the Jackson Hole Economic Symposium—a moment that has taken on new gravity given the swirling controversy. According to Richard Clarida, Powell’s former colleague at the Fed, “I think it is no more subtle than [Powell] wakes up every day and probably goes to bed every night thinking, ‘What can I do to preserve the institution?’” he told the Wall Street Journal. The stakes are high: Wall Street analysts warn that if Trump succeeds in installing loyalists at the Fed, the institution’s credibility—and perhaps the stability of the U.S. dollar—could be at risk.
Paul Donovan of UBS put it bluntly in a note to clients: “In the broader context, investors may worry about whether the Fed still has the appearance of being independent. In a fiat currency system, trust is key and even the appearance of undermining independent policy or data is dangerous—in this case, also threatening the US dollar’s reserve role.” The market’s nervousness was evident. As Jim Reid and his team at Deutsche Bank observed, “The news was a reminder of the lingering concerns over future Fed independence and risks of fiscal dominance, though the extent of the market reaction was fairly modest. The most sustained reaction was in gold (+0.98%).” The dollar index fell by a couple of tenths but soon recovered, while front-end bond yields slipped by 3-4 basis points before rebounding later in the session.
Still, the longer-term trends are hard to ignore. The dollar has been signaling investor wariness all year. As of August 21, 2025, it is down 9.45% year-to-date on the DXY index, and where a dollar once bought 92 pence in late 2022, it now fetches only 74 pence. Stock markets haven’t been immune either—the S&P 500 marked its third straight day of declines on August 20, losing 0.24%. Futures for the S&P 500, STOXX Europe 600, and the UK’s FTSE 100 all pointed downward on August 21, while Asian markets saw mixed results: Japan’s Nikkei 225 dropped 0.65%, but China’s CSI 300 and South Korea’s KOSPI edged up. Bitcoin also took a hit, falling to $113,800.
Trump’s campaign against the Fed, some analysts suggest, could ultimately backfire. Deutsche Bank’s team noted, “If concerns over threats to Fed independence increase, Powell could choose to serve out the rest of his board term (which ends in 2028) even after his term as Chair ends next May.” Such a move would be a clear signal of resistance to political pressure, especially as the Fed faces mounting challenges: inflation remains stubbornly high, with tariffs pushing the effective import tariff rate to 16% in August—up from 11% just a month prior. Eric Teal of Comerica Wealth Management told Fortune, “Inflation remains on the front burner for Fed officials as tariffs still pose a risk to the economy and a pickup in inflation. The labor market remains a wild card.”
Lisa Cook, for her part, has been vocal in advocating for interest rate cuts, calling current monetary policy “restrictive” and warning that tariffs could undermine the progress made against inflation. Her position has put her at odds with more hawkish members of the Federal Open Market Committee and, as some Democrats argue, made her a target for politically motivated attacks. “Donald Trump is making up blatant lies in an effort to oust the first Black woman to serve on the Federal Reserve Board,” House Financial Services Democrats said on X (formerly Twitter).
Amid the political storm, investors and policymakers alike are looking to Powell’s Jackson Hole remarks for clarity. According to Goldman Sachs, Powell is expected to signal support for a potential interest rate cut in September—though he is unlikely to make any definitive commitments just yet. “We do not expect him to decisively signal a September cut, but the speech should make it clear to markets that he is likely to support one,” David Mericle and his team told clients.
As the dust settles, the question remains: can the Federal Reserve maintain its hard-won independence in the face of unprecedented political pressure? The coming weeks—and the markets’ reactions—may provide the answer. For now, the world is watching, and the stakes for America’s central bank, and the global economy, could hardly be higher.
