Fed and Powell Under Fire, but Some Argue Independence Was Always an Illusion

Federal Reserve Chair Jerome Powell announced on Sunday that the U.S. Department of Justice has issued subpoenas to the central bank and initiated a criminal investigation into his testimony on the Fed's headquarters renovation. The probe centers on comments he made during congressional hearings last year.

The development marks a significant escalation in the ongoing conflict between Powell and President Donald Trump, who has repeatedly criticized the Fed for not lowering interest rates as aggressively as he prefers. Powell described the investigation as politically motivated and a threat to the independence of the central bank.

Investors have responded by shifting capital into safe-haven assets. Gold prices surged to record highs, and the U.S. dollar weakened against the euro and the pound. Equities also reacted, with the S&P 500 and Nasdaq 100 showing modest gains after initial declines.

Why Did This Happen?

The investigation was triggered by Powell's testimony in June 2025, where he discussed the $2.5 billion renovation of the Fed's Washington, D.C., headquarters. The Trump administration has accused the Fed of misusing public funds, and the DOJ now appears poised to pursue legal action.

This action is seen by many as an attempt to influence the Fed's monetary policy decisions. President Trump has long criticized Powell for not cutting rates more aggressively. Last year, he publicly called the Fed chair a "major loser" and suggested his removal.

Powell has defended the central bank's independence, stating that monetary policy must be set based on economic evidence, not political pressure.

How Did Markets React?

The immediate market reaction highlighted growing uncertainty over the Fed's future policy independence. The U.S. dollar weakened, while gold and silver prices hit record levels. Investors are reassessing inflation and Treasury yield expectations.

In the U.S. equity markets, the S&P 500 and Nasdaq 100 initially dropped but recovered to end the day slightly higher. The technology sector outperformed, with the Nasdaq 100 gaining 0.41%.

Precious metals also saw strong performance. Gold closed above $4,600 per ounce for the first time ever. Analysts point to the increasing demand for safe-haven assets as a sign of investor unease about the stability of U.S. monetary policy.

What Are Analysts Watching Next?

Analysts remain divided over the long-term implications of the probe. Some argue that the Fed's independence is unlikely to be significantly undermined in the near term, citing the soft labor market and expected rate cuts.

However, concerns persist about the potential for political pressure to shape the Fed's next chair. Kevin Hassett, a Trump-aligned economist, is seen as a leading candidate to succeed Powell in May 2026. Hassett is expected to push for more dovish policies.

Central banks around the world have rallied behind Powell, emphasizing the importance of institutional independence for economic and financial stability. The statement, signed by 11 major central banks, warns that political pressure on the Fed could have global repercussions.

The crypto market has also responded to the news. Bitcoin and Ethereum saw modest gains, reflecting the broader trend of investors seeking alternatives to traditional fiat currencies. However, some analysts caution that increased volatility is likely as political uncertainty grows.

In the coming months, investors will closely watch for further developments in the DOJ investigation, the Fed's policy decisions, and the outcome of the 2026 presidential election. The central bank's ability to maintain its independence will remain a key factor in shaping inflation, interest rates, and global financial stability.