Out of the blue late on Sunday night, Federal Reserve chairman Jerome Powell released a statement — confirming that he is now under criminal investigation by the U.S. Justice Department.
He has been accused of misleading Congress when being questioned about ongoing renovation work at the central bank’s headquarters in Washington DC, which also involves efforts to remove asbestos.
But the project has also put Powell on a collision course with Donald Trump, with both men embroiled in an unusual and comfortable on-camera confrontation last summer.
Powell has come out fighting in his new statement, describing the Trump administration’s latest actions as “unprecedented.” What’s more, he argued this investigation has little to do with the renovations anyway.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.”
Indeed, Trump has been fiercely critical of the Fed’s caution when it comes to cutting the cost of borrowing, regularly referring to its chairman as “Too Late” Jerome Powell.
And with just a few months to go until Powell’s term is due to end, the president is highly likely to nominate someone who is more likely to fulfil his wishes — a move that could have huge ramifications for the markets.
For now, Trump maintains that he hasn’t instigated this legal action, telling NBC News:
“I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings.”
Nonetheless, the weekend’s developments could end up having a substantial impact on Wall Street, the dollar and Bitcoin as investors digest the news. As CNN business anchor Richard Quest wrote on X:
“Powell had no choice but to call out the president. This was a full frontal assault on Fed independence…. I have no idea how the markets will react, but we have entered a very dangerous period where it seems nothing is off-limits.”
Even Republican politicians have expressed alarm about this investigation, including a key member of the Senate Banking Committee. Thom Tillis said there is no longer doubt that the White House is attempting to undermine the Fed’s independence, and is vowing to fight back.
“I will oppose the confirmation of any nominee for the Fed — including the upcoming Fed Chair vacancy — until this legal matter is fully resolved.”
Tillis was joined in his condemnation by Elizabeth Warren, a Democratic senator who has been a vocal critic of the crypto industry. She claimed that Trump was trying to mount a “corrupt takeover of our central bank,” adding:
“He is abusing the law like a wannabe dictator so the Fed serves him and his billionaire friends. The Senate must not move ANY Trump Fed nominee.”
A central bank’s independence matters. Without it, politicians can exert undue amounts of pressure and call for unsustainably low interest rates that end up exacerbating inflation further down the track. This ultimately results in higher levels of economic instability. Examples of countries with central banks that lack independence include Venezuela, Zimbabwe and Turkey — all of which have suffered from hyperinflation in the past.
That being said, there are some who argue that the Federal Reserve is prone to getting things wrong — and given policymakers aren’t directly elected by voters, there’s a lack of democratic legitimacy.
Bitcoin (BTC)24h7d30d1yAll time
This weekend’s events could prove consequential for Bitcoin. The world’s biggest cryptocurrency tends to thrive in low interest rate environments because it makes riskier assets more attractive. With Trump expected to name loyalist Kevin Hassett as Powell’s successor, aggressive cuts could have been on the cards in the second half of 2025.
However, the investigation that Powell is now facing could throw any confirmation into doubt, with politicians on both sides of the aisle in Congress making a concerted effort to block his appointment in retaliation.
Keep a close eye on the markets this week. Dow, S&P 500 and tech-heavy Nasdaq 100 futures had all taken a tumble before the market open on Monday, with the dollar sliding and gold surging to a record high. Freedom Capital Markets’ chief strategist Jay Woods was quoted by CNBC as saying:
“The market has seen this before and doesn’t like it. It’s not about Powell at this point, it’s about the independence of the Fed. So when news like this hits, the knee jerk reaction is to sell off.”
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