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For months Jay Powell has kept calm and carried on amid intense needling from Donald Trump to cut interest rates faster. On Sunday, after US prosecutors launched a criminal investigation into the Federal Reserve chair linked to a $2.5bn refurbishment of the central bank’s headquarters, Powell finally launched a direct accusation at the US president. The threat of criminal charges against him, he said, was all about whether the Fed could continue to set rates based on evidence or “by political pressure or intimidation”. After a series of skirmishes, the White House has gone to war with the Fed.

It is possible that prosecutors have found inconsistencies in Powell’s congressional testimony last year on the Fed’s heavily over-budget renovations. Trump has denied any involvement in the justice department’s subpoenas. But he had recently suggested that the Fed chair might soon face a “lawsuit” for incompetence. Unless it is shown otherwise, much of the US financial and political establishment will assume the White House is using law enforcement agencies to undermine the Fed’s independence.

Even after the shocks of the past year and Trump’s repeated harassment of the Fed — including efforts to fire Lisa Cook, a governor, over alleged mortgage fraud — this is a serious moment. Powell, like any central bank head, can be accused of getting some monetary policy decisions wrong. But that does not justify the US president taking a leaf out of the authoritarian’s playbook in weaponising the criminal justice system — not for the first time — against someone who refuses to do his bidding. Fed independence is not just a vital pillar of US economic governance but an anchor of the entire global financial system.

One oddity is that the assault seems so unnecessary. Powell’s term as chair expires in May and the president has been considering successors including Kevin Hassett, seen by markets as a Trump stooge. The latest move may aim to deter Powell from staying on as a Fed governor, enabling the White House to install another more biddable figure. Or it may simply reflect the president’s retributive instincts.

Either way, these attacks are likely to be highly counter-productive. The latest episode, apparently showing how far the administration is willing to go to exert power over the central bank, could increase household and market inflation expectations. Bond investors are also likely to push up risk premia on long-term US debt. The result will be higher long-term interest rates — which influence US mortgage rates. In time, fears around Fed independence could mesh with worries around US debt sustainability and force rates higher still, in turn driving up global yields.

If the president eventually manages to sway the Fed into excessive rate cuts, aided by a compliant chair and pressure on other committee members, inflation could climb further. US economic growth is robust, and inflationary pressures from Trump’s tariff policy remain a concern.

Though gold surged and the dollar and US stocks fell on Monday, markets reacted less severely than when Trump imposed his “liberation day” tariffs last year. Investors may be assuming the White House’s legal cases will falter, or that there are enough voting Fed committee members to prevent an excessive loosening of policy.

They should not be too sanguine, and Wall Street should speak up. A significant market sell-off, an intervention from US Treasury secretary Scott Bessent, or Congress blocking Fed appointments might yet slow the president’s assault. But with the latest attack, Powell is right: Trump has sent a strong signal to the next Fed chair — and to other rate-setters — that rate decisions made independently of his desires will not be tolerated. And when it comes to getting his way, legalities and convention are no barrier for this US president.