DOJ Probe Into Fed Chair Powell Could Delay Trump's Plan to Install New Fed Chair

The Department of Justice (DOJ) has opened a criminal investigation into Federal Reserve Chair Jerome Powell, centered on his testimony about the Fed's $2.5 billion headquarters renovation project according to CNBC. The move has caused a sharp selloff in U.S. stock futures, with the S&P 500, Dow Jones Industrial Average, and Nasdaq all trading lower in early Monday trading as reported by ABC News. Investors are now evaluating how this probe could impact the Federal Reserve's independence and the broader economy.

The investigation has been interpreted as a political move by the Trump administration to pressure Powell over his monetary policy decisions. Powell has repeatedly been criticized by President Donald Trump for maintaining higher interest rates, which are seen as a drag on consumer borrowing and housing demand according to E&N News. Trump has previously threatened to remove Powell from his position, though such a move would require legal justification.

In a rare public response, Powell issued a video statement defending the Fed's independence. He said the probe was an attempt to pressure the central bank into altering its rate-setting strategy, rather than a genuine concern over the renovation project as reported by Meyka. The statement emphasized the Fed's role in making economic decisions based on data, not political pressure.

Why Did This Happen?

The DOJ probe appears to focus on alleged false statements by Powell during a June congressional hearing regarding the renovation of the Fed's headquarters according to TradingView. The Trump administration has long criticized the project for its cost overruns, with the president calling it an example of excessive federal spending. Powell's term as chair is set to end in May 2026, and he has not yet indicated whether he intends to remain on the Fed's policymaking board until 2028.

Federal law allows the president to remove the Fed chair for "cause," but no president has ever exercised this power. This has led to speculation that the DOJ probe is an attempt to provide the legal basis for a potential removal as noted by Global Newswire.

How Did Markets React?

U.S. stock futures dropped sharply following the news of the probe. The Dow fell nearly 0.6%, the S&P 500 lost 0.4%, and the Nasdaq declined 0.3% according to Reuters. The selloff also coincided with Trump's public comment on capping credit card interest rates at 10%, which further pressured bank stocks as reported by The Washington Post.

Safe-haven assets saw increased demand as investors moved away from equities. Gold prices rose by 2.05%, climbing to $4,593.20 per ounce according to European Commission. Bond yields also increased, which is typically associated with a flight from risk assets and a shift toward fixed income.

What Are Analysts Watching Next?

Analysts are closely monitoring the political implications of the probe and its potential impact on the Federal Reserve's upcoming leadership transition. Thom Tillis, a Republican senator on the Senate Banking Committee, has indicated he will oppose any Trump-nominated Fed chair until the DOJ investigation is resolved as reported by Morningstar. This could delay the nomination process, which was expected to conclude by May 2026.

Tillis's stance is significant because the Senate Banking Committee must confirm any new Fed chair. His opposition could prevent the committee from moving forward with Trump's nominee, even if the president has already identified a preferred candidate as noted by MarketWatch.

The Supreme Court will also play a role in determining whether the administration has the legal authority to remove Powell before his term ends. Legal experts suggest the Court may rule that the president can only remove the chair for specific wrongdoing, not for policy disagreements according to US News.

Investors are also watching for clarity on whether the probe will affect the Fed's upcoming policy decisions. While the investigation does not directly impact monetary policy, the uncertainty around leadership could introduce volatility into financial markets. The Federal Open Market Committee meets later this month, and any unexpected changes could influence investor sentiment.

Market participants are advised to remain cautious and monitor both the DOJ investigation and the Fed's policy trajectory. Until the probe's outcome is clear, the political uncertainty surrounding the Federal Reserve will likely remain a key factor in financial market behavior as reported by Seeking Alpha.