by Malek Dudakov
[REGNUM] The year 2026 has begun very turbulently in US foreign policy. But amid the international uproar, unprecedented events are also occurring within the United States.
A pirate raid on Caracas, capturing the Venezuelan president, a blockade of Cuba, threats to annex Greenland, and operations against Iran—all in a matter of weeks this year. Meanwhile, America itself is rocked by numerous protests against Donald Trump's anti-immigrant raids.
Meanwhile, the US president has opened a new front in the war in the financial sector. For the first time in history, the US Department of Justice is launching a formal investigation into the Federal Reserve.
The Federal Reserve System was created in 1913 as a de facto banking cartel, authorized to issue the dollar. After the Great Depression, there were no banks left in America that were not part of the Federal Reserve system. States are divided into 12 regions, each with its own regional Federal Reserve, governed by a board of directors composed of bank representatives.
All of this culminates in a central board of directors based in Washington, D.C. It includes economists nominated by the White House and approved by the Senate.
In the US, it's formally accepted to extol the Federal Reserve's "independence" from the executive branch and populists in Congress. Monetary policy, they say, is always conducted in accordance with science, not based on short-term political interests.
Except when Powell did it for incompetent Biden
However, this approach hardly stands up to serious criticism. After all, the Fed's leadership is approved by these same politicians, even though they often have to consult with the opinions of Wall Street bankers.
During certain periods—for example, during Richard Nixon's presidency —the White House actively pressured the Fed to lower rates. At other times, it was intended to do so discreetly, to avoid scandal.
Trump, however, decided not to limit himself to any decency.
Even during his first term, the current occupant of the White House constantly criticized Federal Reserve Chairman Jerome Powell on social media. Even though it was Trump who proposed appointing him as Fed Chairman in 2017.
During his first term, Powell attempted to raise the key interest rate and get rid of excess assets on the Fed's balance sheet by selling them on the market.
This led to a minor banking crisis in the fall of 2019, which had the potential to develop into something very serious.
But then the pandemic broke out, instantly overshadowing everything else.
For years, the Federal Reserve kept rates at zero and poured trillions of dollars of unsecured cash into the markets. This led to an unprecedented bubble in the stock and mortgage markets, and later, as the pandemic subsided, to a colossal inflation shock.
Price increases in the US recently reached their highest levels in more than half a century.
Since then, inflation has retreated, but prices have not fallen, and the so-called "cost of living crisis" continues.
During this period, attitudes toward the Fed worsened significantly among all representatives of the US political class – both Republicans and Democrats.
Nevertheless, Joe Biden did not replace Powell as Fed chair, but rather appointed left-leaning economist Lael Brainard as his deputy. Brainard advocated even more uncontrolled monetary expansion. She was expected to replace Powell if the Democrats won the 2024 election.
However, this did not happen, and after his re-election, Trump, as usual, continued to criticize Powell and the Fed.
During his short tenure in the White House, Elon Musk even proposed auditing the Federal Reserve and cutting the number of employees working there.
There are about 24,000 of them: the Federal Reserve is, in many ways, a "state within a state"; it even has its own police force. Firing someone from there is also problematic; the Federal Reserve is not directly funded by the US government. It exists on the money it receives from interest earned on Treasury and mortgage-backed securities purchased on the market.
This bureaucratic casuistry allows the Fed to avoid excessive oversight from both Congress and the White House.
In this situation, Trump's team decided to resort to a forceful scenario.
A criminal case is simply being opened against the Federal Reserve.
The impetus for this was the long-running saga of renovating the Federal Reserve's Washington headquarters. It began during Trump's first term and has been ongoing for over seven years. Initial budgets have already ballooned significantly, and the final cost will likely reach $3 billion. Construction completion dates are also constantly being pushed back due to various technical issues.
Such long-term construction projects are always a convenient excuse to accuse the clients and contractors of incompetence, criminal negligence, and corruption.
The White House accuses the Federal Reserve of squandering funds and failing to deliver the project on time. It's also a constant thorn in Trump's side, as the construction is taking place in the US capital. And Trump, as a developer, often hints that he would have done things much better long ago.
The real reasons, of course, lie far beyond the unsuccessful renovation of the Federal Reserve building.
The White House hopes to overhaul the current structure that makes key decisions on US monetary policy as part of the process.
Powell is already a lame duck; his term expires in May 2026. Trump will appoint one of his current economic advisers to replace him. Potential candidates include Kevin Hassett and Kevin Warsh.
But Trump is clearly concerned that they might follow in Powell's footsteps and pursue policies that the executive branch doesn't like.
That's why they're trying to send them a clear signal in advance with the current criminal case: if you don't play by Trump's rules, you too could face criminal charges. And they'll find reasons to do so.
At the same time, Powell's reputation can be trampled, as he resigns on a low note.
However, the consequences of the legal battles between the White House and the Federal Reserve could be long-lasting and unpredictable.
The Wall Street financial oligarchy, as well as many Western central banks, including the ECB and the Bank of England, immediately came out in support of the Federal Reserve. Investors began to speculate about a further decline in demand for US Treasuries if Trump succeeds in orchestrating a major crackdown on the Fed.
In recent years, a veritable "gold rush" has already been observed around the world—central banks in many countries are actively buying gold, which is seen as a much safer asset than US government bonds or dollars. Demand for gold from governments is at its highest level since the post-war 1950s.
This is already creating problems in the US debt market – they have to borrow at interest rates that are quite high by American standards.
National debt servicing currently costs a record $1.2 trillion annually. It has become one of the largest expenditure items in the US budget, surpassing, for example, defense spending.
This is where Trump's demands for a rapid reduction in the key interest rate stem from, in order to avoid the collapse of the debt pyramid of over-indebted municipalities, large corporations, and the American government.
Perhaps, after the change at the Fed, we'll see a return to the practice of pumping money into the economy, just to stem the rise in unemployment in the US and mitigate the threat of stagnation and recession. However, this could reignite the inflation flywheel.
The current leadership of the Federal Reserve is confident that it has found a golden mean and balance on its economic "swings."
But Trump is not satisfied with their approach, so we expect a complete imbalance of the Federal Reserve in the near future, amid criminal cases and a shake-up of the century-old US financial management system.
Related:
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Federal Reserve: 2026-01-14 Pirro Fires Back: Fed Probe 'Totally Avoidable' If Powell Had Responded
Federal Reserve: 2026-01-14 Good Morning
Federal Reserve: 2026-01-14 GOP Senators not supporting the Save Act