It was announced that the U.S. Department of Justice had initiated a criminal investigation into Jerome Powell, the Chair of the Federal Reserve. In his video, posted on Sunday, Jerome claimed that the probe stems from his testimony last summer regarding the central bank’s $2.5 billion headquarters renovation project. He suggested that the investigation may be an attempt to put pressure on the Fed and its monetary policy, potentially encouraging further rate cuts. However, Powell emphasized that the Fed would not bow.
Immediately after the news broke, the market reacted: Dow Jones futures declined by approximately 200 points, while Nasdaq and S&P futures fell by 0.5-1%. Interestingly, the decline occurred after a strong indices finish to the previous week, when the S&P 500 and Dow Jones closed at record highs. The S&P 500 experienced a more than 1% increase over the week, while the Dow Jones and Nasdaq saw even higher figures — 2.3% and 1.9% respectively.
Apart from that, the news of the probe also influenced the position of the U.S. dollar, resulting in its depreciation against currencies such as the euro and the British pound, among others. For instance, the EUR/USD pair reached $1.17. In addition, the yields for long-term U.S. Treasuries became higher, while the values for the short-term ones declined.
In contrast, the price of gold reached a new maximum, peaking at $4,600, as the safe-haven asset drew attention once again amid news and heightened market uncertainty. Similarly, silver witnessed a new peak, surpassing $84 per ounce.
The situation has reignited broader concerns over the independence of the Federal Reserve and U.S. institutions more generally. Jerome Powell’s term as Fed Chair ends in May, which significantly influences expectations about future Fed policy. Although it is possible that he may step down before the official date, the market is quite skeptical about it, pricing this probability at only 8% on Polymarket.
Another element contributing to the picture is the release of the consumer inflation report, expected on Tuesday. Currently, the likelihood of the Fed not cutting rates further at the meeting later this month is priced at 95%, according to the CME FedWatch.
Overall, the process initiated will examine the Fed’s independence and whether it will be able to continue conducting its policy based on economic data, or whether political pressure may increasingly influence its decision-making.
This article was written in cooperation with tradingview