The Federal Reserve has shifted its long-standing strategy of avoiding conflict with the executive branch, now adopting a more confrontational stance in response to increasing political pressure from former President Donald Trump. This change in approach follows the revelation of a criminal investigation into whether Fed Chair Jerome Powell misled Congress, as reported by The New York Times on Sunday.

For years, the Federal Reserve, under Powell's leadership, had attempted to navigate Trump's repeated criticisms and actions, including an executive order aimed at increasing presidential oversight of the Fed's regulatory authority over Wall Street and attempts to remove a member of the Board of Governors. The Fed's strategy involved, at times, accommodating the administration's preferences on issues like climate change and bank regulation, while steadfastly protecting its independence in setting interest rates.

However, the emergence of a criminal investigation has prompted the central bank to reassess its position. According to Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, Trump's actions represent a "nuclear option," removing any remaining incentive for Powell to refrain from publicly defending the Fed's policies and autonomy.

The central bank's independence has long been a cornerstone of U.S. economic policy, insulating monetary policy decisions from short-term political considerations. This independence allows the Fed to focus on its dual mandate of maintaining price stability and promoting maximum employment.

The investigation and the Fed's response raise questions about the future relationship between the executive branch and the central bank. The outcome of this conflict could significantly impact the Fed's ability to operate independently and effectively manage the nation's economy. The coming weeks are expected to reveal more about the nature of the investigation and the Fed's strategy for defending its autonomy.