On January 11, Federal Reserve Chairman Jerome Powell released a rare video statement, publicly accusing the U.S. Department of Justice (DOJ) of threatening criminal charges in an attempt to force the Fed to comply with President Trump's interest rate policy demands. This event quickly became the focus of global financial markets, sparking widespread concerns about the Fed's independence.
In his statement, Powell emphasized that this threat was a "consequence" of the Federal Reserve setting interest rates based on public interest rather than presidential preferences, and called it a blatant attack on central bank autonomy. This incident is not isolated, but rather the latest manifestation of the intertwined politics and economics during Trump's second term.
Following the incident, US stock index futures fell rapidly, with S&P 500 futures down more than 0.5% and Dow Jones futures down 150 points during Asian trading hours. Spot gold rose 1.88%, spot silver surged about 4%, and the cryptocurrency market saw BTC continue to fluctuate around $91,000.
Trump has repeatedly expressed dissatisfaction with Powell's "slow pace of interest rate cuts."
Jerome Powell was appointed Chairman of the Federal Reserve by then-President Trump in 2018 and was re-elected in 2022, with his term originally scheduled to end in May 2026. As the head of the Federal Reserve, Powell's central bank has weathered the challenges of the COVID-19 pandemic, economic recovery, and high inflation, and his policies are known for being data-driven and gradual.
However, after Trump's victory in the 2024 election, he returned to the White House and quickly turned his attention to the Federal Reserve. Trump has long criticized Powell for being "slow to act," particularly on interest rate policy. He has repeatedly called on the Fed to cut interest rates significantly to stimulate economic growth and stock market performance, and even promised during his campaign to "take control" of the Fed to achieve his "America First" economic agenda.
The incident was sparked by a $250 million renovation project at the Federal Reserve's Washington headquarters. The project, initiated several years ago to upgrade aging facilities, has become controversial due to cost overruns and transparency issues.
In July 2025, Republican Representative Anna Paulina Luna accused Powell of giving false testimony about the project during a congressional hearing and requested a criminal investigation. This accusation did not escalate immediately, but the Justice Department intervened swiftly after Trump took office. On January 11, 2026, according to multiple media reports, the U.S. Attorney's Office for the District of Columbia formally launched a criminal investigation into Powell, focusing on whether he misled Congress and whether the use of project funds was irregular. A grand jury has issued subpoenas requesting the Federal Reserve to provide relevant records.
On January 12, according to NBC, Trump stated in a phone interview that he knew nothing about the Justice Department's investigation and again criticized Powell. "I know nothing about this, but he's obviously doing a bad job at the Fed, and he's doing a bad job building houses." When asked how he would respond to Powell's claim that the subpoenas were government pressure on the Fed to cut interest rates, Trump said, "No, I wouldn't even consider that. What should really be putting pressure on him is the reality that interest rates are too high. That's the only pressure he's facing."
In his video statement, Powell explicitly linked this to interest rate policy. He noted that the Justice Department's actions were "unprecedented" and aimed to force the Federal Reserve to lower interest rates to cater to Trump's demands through criminal threats. In the statement, Powell reiterated the Fed's statutory mandate to maintain price stability and maximize employment, not to succumb to political pressure. He described the incident as a "blatant violation of the Fed's independence" and implied it was a continuation of the Trump administration's pressure on the central bank.
Back in Trump's first term, Powell clashed with the White House over his refusal to cut interest rates drastically, leading Trump to publicly label him an "enemy." The timing of this investigation is particularly sensitive: the Federal Reserve's most recent meeting maintained the benchmark interest rate in the 4.25%-4.5% range, far exceeding Trump's expectations.
The latest data from Polymarket shows that the market is betting that the probability of the Federal Reserve keeping rates unchanged in January has risen to 96%.
Supporters on X see him as a hero who defends independence, while opponents accuse the Federal Reserve of "damaging the economy." Some netizens say "abolishing the Federal Reserve is the right thing to do," while others believe that warning him will trigger a constitutional crisis.
The investigation, authorized by newly appointed U.S. Attorney Jeanine Pirro, a staunch ally of Trump, further deepens concerns about political interference.
Powell responded that he would fully cooperate with the investigation but would not allow it to influence monetary policy decisions. The root of this incident can be traced back to the design of the Federal Reserve system. Established in 1913, the Fed aims to be independent of politics, but there are historical precedents of presidential interference, such as the shadow of the Watergate scandal during the Nixon era. This incident marks an extension of Trump's "deregulation" agenda, for which he has pledged to restructure federal agencies, including weakening the Fed's power, since taking office.
As of January 12, the investigation remained in its preliminary stages, with prosecutors repeatedly requesting documents, while the White House declined to comment. Analysts predict that if the investigation escalates, the Federal Reserve may be forced to accelerate interest rate cuts to alleviate pressure, but this could trigger a rebound in inflation, impacting US economic growth.
Powell himself may face personal risks: if convicted, he could be forced to resign or even face imprisonment, despite legal experts believing the evidence is weak.
Powell has responded positively through a public statement. In addition to hiring lawyers to challenge the legality of the subpoena, he can also appeal to the court or seek assistance from members of both parties, especially those who are concerned about the independence of the Federal Reserve.
Hassett and Warsh emerge as leading candidates to succeed him as Federal Reserve officials.
The criminal charges against Powell have exacerbated market uncertainty. Following the revelation, investors worried that damage to the Federal Reserve's independence could lead to policy erratic behavior. Powell's statement emphasized that threatening criminal charges would "damage" the central bank's credibility and potentially push up risk premiums.
Secondly, this incident was seen as a signal of Trump's consolidation of power, triggering a strong backlash from Democrats and social groups. Democratic lawmakers called it a "constitutional crisis," fearing that the Department of Justice could be weaponized for political retaliation.
While Jerome Powell's term runs until May 2026, the latest speculation surrounding his successor has accelerated discussions. Trump has stated he will announce his nominee by the end of this month.
The latest data from Polymarker shows that the market is betting the highest probability on Kevin Warsh and Kevin Hassett, at 43% and 39% respectively. Warsh was nominated to the Federal Reserve Board of Governors by President Bush in 2006, becoming the youngest Fed governor at the time. He is known for his hawkish stance but is also pro-market. In 2017, Trump considered appointing Warsh as Fed Chairman but ultimately chose Powell.
Hassett is a prominent conservative economist in the United States, currently serving as Director of the White House National Economic Council. He previously served as Chairman of the White House Council of Economic Advisers and supports low interest rates and Trump's economic agenda. In November 2025, he was considered by Trump and his advisors and allies as the leading candidate to become the next Chairman of the Federal Reserve.
