Former President Donald Trump has escalated his battle with the U.S. Federal Reserve, announcing what he called a “major lawsuit” against Fed Chair Jerome Powell — a move that stunned financial analysts and injected new uncertainty into already volatile markets. In a statement shared late Monday night, Trump accused Powell of “deliberately choking the American economy” and claimed the Fed’s current interest rate policy was designed to “sabotage” growth ahead of the 2026 election.
The announcement came just hours after Trump appeared at a business roundtable in Las Vegas, where he renewed his demand for an immediate and substantial interest rate cut. “Jerome Powell has failed the American people,” Trump told the audience, according to financial reporters on the ground. “We have historic potential for growth, but we’re being held back by unnecessary, destructive policies. And we’re going to court to stop it.”
Details of the lawsuit remain scarce, but Trump’s legal team hinted it would allege constitutional violations tied to the Fed’s independence, a radical legal argument that economists say could face steep challenges. Legal scholar Martha Kline told investigative journalists that no president, former or current, has ever sued the sitting Fed chair over policy decisions. “It’s an extraordinary move — and one that could shake the foundation of central banking if it were ever taken seriously in court,” she said.
BREAKING: Trump says he’s filing a “major lawsuit” against Fed Chair Powell and is demanding an immediate interest rate cut. This is unprecedented. 📉— Market Watchdog (@MarketWatchdog) August 12, 2025
The Fed currently holds its benchmark interest rate at 5.25% to 5.50%, the highest level in more than two decades. Powell and other central bank officials have argued that keeping rates elevated is necessary to fully tame inflation, which surged during the pandemic and remains above the Fed’s 2% target. In a recent policy briefing, Powell emphasized that premature rate cuts could reignite inflationary pressures, undermining recent progress.
Trump has long been critical of Powell, whom he originally appointed in 2018 but later turned against when the Fed raised rates during his presidency. His latest remarks accused Powell of acting with “political motivation” to hinder economic momentum as Trump eyes a return to the White House. “He’s playing politics with your mortgages, your credit cards, your jobs,” Trump told supporters during a rally streamed live by business networks. “We’re not going to sit back and let him do it.”
The announcement instantly reverberated across Wall Street. The Dow Jones Industrial Average fell nearly 300 points in after-hours trading, with banking and real estate stocks among the hardest hit. Market strategist Alan DeVries told financial news outlets that while the lawsuit itself may have little chance of success, the political pressure could complicate the Fed’s upcoming decisions. “This adds another layer of uncertainty. The Fed already walks a tightrope between fighting inflation and avoiding a recession,” he said.
Trump vs. Powell is now in lawsuit territory. Regardless of outcome, the markets are already reacting. 📊— Finance Insider (@FinanceInsider) August 12, 2025
According to sources familiar with Trump’s legal strategy, the lawsuit will argue that Powell’s refusal to lower rates despite slowing job growth violates principles of due process and economic fairness. While most legal experts view the claim as a long shot, they acknowledge it could serve a political purpose, reinforcing Trump’s image as a fighter against what he often calls the “Washington establishment.”
Some economists fear the rhetoric could erode public confidence in the Fed’s independence, a cornerstone of modern monetary policy. “Once you start threatening lawsuits over interest rates, you’re setting a dangerous precedent,” said former Treasury official Carla Jennings in an interview with policy reporters. “The Fed’s job is to make decisions based on economic data, not political pressure — whether that comes from the left or the right.”
For his part, Powell has not publicly responded to Trump’s latest salvo. In recent speeches, however, he has acknowledged the political pressures the Fed faces while reiterating its mandate to maintain price stability and maximum employment. “We understand that our decisions have broad impacts,” Powell said in a recent international forum. “But our responsibility is to the American economy as a whole, not to any single political agenda.”
Trump’s push for rate cuts has become a recurring theme in his public appearances, with the former president often framing the issue as a matter of economic patriotism. At a campaign event last week, he told a crowd that lowering rates would “unlock a golden age of American prosperity” and warned that failing to act would lead to “avoidable pain for millions of working families.” His comments have been amplified by influential voices in conservative media, including commentary segments urging Powell to “stop holding the economy hostage.”
Trump’s lawsuit against Powell is less about winning in court and more about winning the political narrative heading into 2026. 🏛️— Political Economy Now (@PolEconNow) August 12, 2025
Meanwhile, business groups are divided on the issue. Some trade associations representing homebuilders and retailers have praised Trump’s calls for lower rates, citing sluggish sales and higher borrowing costs as barriers to growth. Others, including banking industry leaders, have warned that sudden rate cuts could destabilize credit markets and reignite inflationary pressures. “There’s a balance to be struck,” said Michael Ortega, CEO of a major regional bank, in a statement to financial publications. “We can’t throw the inflation fight out the window just because it’s politically convenient.”
Beyond the courtroom, the legal maneuver could become a central talking point in Trump’s campaign against President Biden, whose administration has largely backed the Fed’s approach to inflation. While Biden himself has refrained from publicly criticizing Powell, some Democrats have privately expressed frustration that high rates are dampening economic optimism heading into the next election cycle. Progressive lawmakers, meanwhile, have called for more aggressive fiscal measures to offset the effects of elevated borrowing costs.
The lawsuit also raises questions about how far a former president can go in challenging the authority of an independent federal agency. “We’re in uncharted waters here,” said constitutional law professor Daniel Hsu in a conversation with Capitol Hill reporters. “Even if the courts throw this out immediately, it sends a signal to voters about Trump’s willingness to fight perceived enemies in the federal bureaucracy — and that message could resonate regardless of the legal outcome.”
As markets await further details, Fed watchers are turning their attention to the central bank’s next policy meeting in September, where Powell and his colleagues will decide whether to maintain current rates or signal a shift toward easing. If inflation data continues to cool and job growth slows further, some analysts believe Powell could begin laying the groundwork for cuts — though they caution that any move will be based on economic indicators, not political lawsuits.
For now, Trump appears determined to make Powell a central figure in his broader narrative of “American renewal” versus “Washington obstruction.” Whether the courts take his lawsuit seriously remains to be seen, but the political and market ripples are already spreading — with no sign of calming anytime soon.
