Markets React to Trump Fed Investigation Targeting Jerome Powell

The Trump administration’s decision to open a criminal investigation into Federal Reserve Chair Jerome Powell has intensified the president’s campaign against the central bank. Powell called the move a “pretext” aimed at influencing interest rate decisions and warned it threatens the Fed’s independence.

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Market Reaction and Financial Impact

The Justice Department’s threat of indictment stems from Powell’s testimony to Congress about cost overruns in a Fed headquarters renovation. The announcement shook financial markets. Yields on long-term U.S. Treasury bonds rose as investors worried about a less independent Federal Reserve. Gold prices hit a record high, the dollar dropped, and U.S. stocks opened lower. Analysts warned that continued market instability could hurt Trump’s broader economic agenda. Higher borrowing costs would make it harder for families and businesses to manage expenses.

Political Backlash and Bipartisan Concerns

Former Fed chairs Janet Yellen, Ben Bernanke, and Alan Greenspan, along with other former economic officials, criticized the investigation. They said politicizing monetary policy often leads to higher inflation and weaker economies in countries with fragile institutions. Republican senators on the Senate Banking Committee also spoke out. They called the move a serious mistake and pledged to block future Fed nominations until the issue is resolved.

Powell’s Response and Trump’s Position

Powell, whose term as Fed chair ends in May but who can remain on the Board of Governors until 2028, confirmed that the Fed received grand jury subpoenas. He emphasized his respect for the rule of law and said the investigation reflects broader pressure on the Fed to lower rates. Trump said he did not know about the Justice Department’s actions but criticized Powell’s leadership. The Justice Department declined to comment, saying only that prosecutors prioritize investigations into possible misuse of taxpayer money.