When three former Federal Reserve chairs tell you something is seriously wrong, it's probably worth paying attention. Janet Yellen isn't mincing words about the Justice Department's criminal investigation into current Fed Chair Jerome Powell, calling it "extremely chilling" for central bank independence.

Yellen, who led the Fed before Powell and later served as Treasury Secretary under President Biden, told CNBC she believes this is a deliberate attempt to undermine the Fed's independence. What really surprised her? The market's collective yawn. "It seems to me that the market should be concerned," she said.

On Monday, traders apparently disagreed. The S&P 500 and Nasdaq Composite closed 0.16% and 0.26% higher, respectively, while the Dow Jones Industrial Average climbed 0.17%, shaking off any initial jitters about the Fed situation.

Yellen went further, defending Powell's integrity directly. She said the odds of him lying "are zero" and suggested the Trump administration's real motivation is simple: they "want him gone."

She also took aim at President Donald Trump's public commentary on Fed policy, particularly his calls for rate cuts to reduce federal debt payments. That approach, she warned, would put the country on a path toward becoming a "banana republic."

Yellen isn't alone in her concern. Former Fed Chairs Ben Bernanke and Alan Greenspan, along with ex-Treasury secretaries and prominent economists, issued warnings that a criminal probe into Powell threatens Fed independence. They compared it to practices seen in countries with weak institutions and made clear it has no place in the United States.

Trump's Campaign Against Powell

During his second term, Trump has made Powell a frequent target. He's publicly criticized the Fed chair repeatedly, pushing for rate cuts to lower federal debt payments. Trump even raised questions about the lengthy renovation of the Fed building, going so far as to visit the construction site in July to validate his claims.

After floating the idea of suing Powell, Trump's latest move came Sunday when the DOJ threatened criminal indictment over Powell's congressional testimony. The Fed has labeled this as a pretext for a broader power struggle over who controls U.S. monetary policy.

Powell Fights Back While Economists Sound Alarms

Powell didn't stay quiet. He released a video statement pushing back hard against DOJ threats, calling the building renovation costs and grand jury subpoenas mere pretexts. The real conflict, he argued, is about control of U.S. monetary policy.

Economist Justin Wolfers saw Powell's public statement as a turning point, characterizing it as a direct counter-offensive against executive pressure. Powell is "going to war" to protect central bank independence against what Wolfers called the "Department of Recriminations." In a separate BBC interview, Wolfers warned the DOJ probe could ultimately lead to "hyperinflation."

Yellen has been consistently critical of Trump's attempts to control the Fed. Last August, she warned of potentially "catastrophic" consequences if the president tried to dismiss Fed Governor Lisa Cook. Politicized central banks, she noted, deliver higher inflation, volatile growth, and weakened currencies. None of that, she emphasized, would be good for the United States.