Trump Team Escalates Powell Attack, Raising Federal Reserve Risk

Indictment threat against Powell pushes central-bank independence into prices

U.S. political pressure on monetary policy escalates after the Justice Department issued grand jury subpoenas to the Federal Reserve and signaled the possibility of criminal charges against Chair Jerome Powell over prior testimony linked to a building renovation. The Trump team’s latest move, framed by Powell as a “pretext,” is raising Federal Reserve risk for investors because it drags the institution’s independence into day-to-day trading, a dynamic that can reprice the long end of the curve and lift risk premia across assets.

Powell said the subpoenas arrived late last week and cited remarks he made to Congress last summer about a roughly $2.5 billion renovation project for Federal Reserve buildings. He denied wrongdoing and said the legal push is designed to pressure rate policy at a time when the administration has been publicly demanding faster easing.

Renovation dispute becomes the stated basis for the legal campaign

The inquiry centers on a modernization plan for central-bank facilities in Washington, including the Eccles building complex, and Powell’s comments to lawmakers about cost, scope, and oversight. The administration’s line has focused on taxpayer concerns and possible misstatements, while Powell’s position is that the project has been subject to established review processes and that his testimony was not a crime.

The legal posture matters because it changes the power balance even without an indictment. Grand jury subpoenas force document production and create a running clock for headline risk, and markets tend to treat that as a form of tightening in financial conditions when it touches policymaking.

Powell frames the attack as political pressure tied to rate cuts

Powell said no one is above the law, including the chair of the central bank, but argued that the current threat is part of broader efforts to gain more influence over interest rates. The administration has repeatedly criticized the Federal Reserve for keeping policy too restrictive and has sought a sharper reduction in borrowing costs than investors currently expect.

That linkage is why the episode is not being treated as a niche legal story. If investors conclude monetary policy decisions can be shaped by criminal leverage, they may demand a higher premium for holding long-dated U.S. assets, even if near-term inflation data are unchanged.

Lawmakers warn the dispute risks damaging the credibility of institutions

The episode drew pushback from senior lawmakers, including Republican Senator Thom Tillis, who criticized the idea of using the Justice Department to pressure a central bank and said he would oppose new nominees to the Federal Reserve until the matter is resolved. Other Republican senators also expressed concern, adding to a bipartisan theme that an overt pressure campaign could weaken confidence in the rule set that supports stable inflation expectations.

Treasury Secretary Scott Bessent has also warned internally that an investigation targeting the chair could unsettle markets, according to people familiar with discussions. President Donald Trump denied directing the probe, while continuing to criticize Powell’s leadership and the pace of easing.

Markets respond through volatility, not a single-direction move

The first market reaction showed up in rates and hedges rather than outright equity liquidation. Treasury yield volatility rose, with investors focusing on whether the long bond would price a higher term premium if policy credibility is questioned. Moves in the dollar were choppy, but the dollar safe haven bid strengthened against some risk-sensitive currencies as traders sought liquidity.

Gold also stayed supported, reflecting demand for protection when institutional risk increases. Equities swung, then steadied, with investors splitting between a near-term view that rate cuts may still arrive and a longer-term concern that political pressure can make policy less predictable.

Why Treasury swings can persist even if the Fed holds its line

The key rate mechanism is not the next meeting. It is the belief that future decisions might be influenced. If independence is seen as weaker, investors often ask for more compensation to hold duration because inflation expectations become harder to anchor and policy reaction functions become less clear.

That can steepen the curve even when the front end is pricing easing. In that setup, stocks can face a tougher discount-rate backdrop while credit spreads can widen at the margin, especially for borrowers that rely on stable long-term funding costs.

Investors recall “sell-America” episodes when policy risk hits institutions

Strategists at Evercore ISI warned clients that a direct challenge to the Federal Reserve can revive a “sell-America” trade in which the dollar, bonds, and stocks all weaken together, a pattern that appears when investors attach a risk premium to U.S. governance rather than to growth alone. Invesco strategists have also flagged the investigation as a new market risk factor because it can raise uncertainty around the policy path even if economic data are stable.

The comparison investors keep in mind is not a normal policy dispute. It is the kind of credibility loss that has historically pushed up borrowing costs in countries where central banks are perceived as politically captive.

The calendar matters: Powell’s chair term ends in May 2026

Timing is another reason the dispute is sensitive. Powell’s term as chair ends in May 2026, though he could remain on the Federal Reserve Board through 2028. That creates a compressed window in which political and legal pressure can influence expectations for the next chair and the committee’s internal balance.

The administration has also been seeking to remove Fed Governor Lisa Cook, a separate legal fight that is moving through the courts. Investors see those parallel tracks as part of a broader contest over the structure of independent agencies.

What happens next depends on legal steps and nomination signals

The base case is that subpoenas keep the story alive without immediate criminal charges, leaving markets to price a modest independence premium through Treasury swings and hedge demand. Under that path, 2026 rate-cut pricing remains driven mainly by inflation and jobs data, but with a higher volatility overlay.

An upside scenario for risk assets would require de-escalation, such as the Justice Department narrowing or dropping its inquiry and the administration signaling that any chair selection will respect standard constraints. That would likely ease Treasury yield volatility and reduce the need for a defensive dollar position.

A downside scenario is a formal indictment filing, or additional legal steps that appear timed to influence meetings, speeches, or votes. That would likely lift long-end yields through term premium, push gold higher, and tighten financial conditions for equities and credit, even if the economy does not change.