Economist Justin Wolfers slammed the latest escalation in the feud between President Donald Trump and Federal Reserve Chair Jerome Powell, after the Justice Department threatened the central bank with a “criminal indictment” over its multi-billion-dollar headquarters renovation project.

This Is The Stuff of ‘Tin-Pot Dictators’

On Tuesday, Wolfers said that the Trump administration’s move was “unprecedented,” since it involves “the president threatening the Fed chair with jail,” while appearing on MS Now.

Underscoring the gravity of the situation, Wolfers said that while this was the first time a Fed Chair has been threatened with jail for “upsetting the president in U.S. history,” such authoritarian tactics have played out in countries like “Argentina, Russia, Turkey, Venezuela, and Zimbabwe.”

“This is the stuff of tin-pot dictators,” he said, while noting that it was precisely the sort of action that would precede a “hyperinflation,” adding that it was “the sort of story that never ends well.”

Despite the severity of this threat, the markets have reacted cautiously, but not “dramatically,” which Wolfers said was because “No one knows if he's serious about this.”

Wolfers attributed this to what he called “the old Trump two-step,” saying that the markets will react if he is serious, while most expect him to “back down and walk away,” while pretending like “nothing happened at all.”

In his post on X, Wolfers called this a “volatility tax,” noting that even if Trump eventually backs down, the fact that it happened raises the “perceived risk of future interference.”

Former And World Central Bank Leaders Back Powell

Former Federal Reserve Chair Janet Yellen expressed serious concerns regarding the Justice Department’s probe into Powell, calling the situation “extremely chilling.”

Ben Bernanke and Alan Greenspan, both former Fed Chairs, also warned that a criminal probe into Powell threatens the Fed’s independence, saying that such practices have no place in the United States.

Other top worldwide central bank leaders, similarly, rallied behind Powell, with European Central Bank President Christine Lagarde saying, “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” on behalf of twelve central banks.

Even U.S. Treasury Secretary Scott Bessent had reportedly warned Trump on Sunday that a federal investigation into Powell “made a mess” and would be bad for the financial markets, according to Axios, citing two sources familiar with the call.

U.S. markets have had a volatile week so far, but major indices, such as the S&P 500, the Nasdaq and the Dow Jones are mostly flat, down 0.02%, up 0.16% and down 0.62%, respectively.

Prices of gold and silver, on the other hand, have surged 3.16% and 14.23%, respectively, touching new record highs amid continued turbulence in the Federal Reserve. The U.S. Dollar Index has recovered after witnessing a steep decline on Monday, and is currently down 0.07% for the week, trading at 99.1475.

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