The Department of Justice claims it is investigating Powell's testimony about the use of taxpayer dollars in the renovation of the Central Bank's headquarters.
RELATED | Federal Reserve Chair Powell says DOJ has subpoenaed central bank, threatens criminal indictment
But Powell said the action is a direct consequence of the Fed's refusal to lower interest rates, which is something President Trump has been pressuring the Federal Reserve to do.
Economic experts said this is an unprecedented action by the Trump administration.
The markets look to the Federal Reserve and trust it for guidance, but some economic experts warn that the administration is now undermining the Central Bank's credibility, which, in turn, could be very damaging to consumers and the overall economy.
"It's a big deal because of what it signaled to the markets, investors, consumers and businesses across the world," said John Kiernam with WalletHub. "Anything that compromises the credibility of the dollar and the credibility of our financial system is extremely dangerous."
The Federal Reserve or Central Bank controls monetary policy in the U.S. with an ultimate goal to keep the economy stable.
"Their target is to do two things: they want to have maximum employment in the U.S., so as many people working as possible, and they want to have price stability," said Kiernan.
To meet those targets, the Federal Bank has been historically protected from politics and the presidency.
"Why is it so important that the position of Fed chair remain independent and not political or partisan?" asked Nydia Han.
"First of all, history shows that central banks elsewhere around the world that are political do not achieve success toward their aims," said Senior Economic Analyst Mark Hamrick with Bankrate. "Politicians have different motivations because they are beholden to the political cycle, and that's why this recent episode is so remarkable and also chilling."
President Trump has denied any involvement in the criminal investigation but has repeatedly criticized Powell for refusing to significantly lower interest rates, a move that would reduce credit card and auto loan interest rates.
Powell and economic experts warn that reducing interest rates too quickly could cause inflation to roar out of control.
"The real risk here is that if the credibility of the Federal Reserve is shot, that we see essentially a domino effect where interest rates start to go higher," said Hamrick. "That leads to higher borrowing costs for Americans. And the strong performance of the stock market that we've seen for several years now essentially significantly reverses."
And a reminder, the Fed has no control over long-term rates on things like mortgages, so if Trump's plan backfires, that could go up.
Bottom line is the leadership position and credibility of the U.S. economy is at stake here and, of course, could have a ripple effect across the world.
And one more possible consequence, according to economists, if the dollar weakens, anything we import would get more expensive, and that would have a significant impact on consumers as well.