The Federal Reserve has shifted its long-standing strategy of avoiding conflict with former President Donald Trump, now adopting a more confrontational stance following the revelation of a criminal investigation into whether Fed Chair Jerome Powell lied to Congress. This change in approach marks a significant departure from the Fed's previous attempts to appease the Trump administration, which included bending to some of its demands regarding climate change and bank regulation.

The shift comes after years of Trump's public criticism of the Fed and its monetary policy, particularly its interest rate decisions. According to The New York Times, the criminal investigation served as the catalyst for the Fed to abandon its cautious approach and actively defend its independence.

Throughout Trump's presidency, Powell sought to maintain the central bank's autonomy while navigating the president's often-unpredictable behavior. This involved resisting direct interference in interest rate policy, which Powell viewed as a red line for the Fed's independence. However, the administration's pressure extended to other areas, including attempts to exert greater control over the Fed's oversight of Wall Street and efforts to remove a sitting member of the Board of Governors.

Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund, suggested that Trump's actions left Powell with little choice but to openly defend the Fed's position. "Trump is now exercising the nuclear option, so there is no longer a reason for Powell not to speak his mind," Obstfeld said.

The current situation raises concerns about the future of the Fed's independence and its ability to conduct monetary policy without political interference. The outcome of this conflict could have lasting implications for the stability of the U.S. economy and the credibility of the central bank. The investigation is ongoing, and the Fed has not released an official statement.