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The Department of Justice served the Federal Reserve with grand jury subpoenas on Friday and threatened a criminal indictment related to Fed Chair Jerome Powell’s testimony before the Senate Banking Committee last June about a multi-year project to renovate historic buildings.
That’s according to a Sunday evening statement from Powell, whose term as Fed chair expires in May.
“This unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure,” Powell said. “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.”
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President Trump told NBC News Sunday he was unaware of either the Justice Department’s investigation or its subpoenas and said they weren’t politically motivated.
“The DOJ’s investigation follows a year in which the president has made it clear he is unhappy with the Federal Reserve’s monetary policy stance,” Wells Fargo economists Tom Porcelli, Sarah House and Michael Pugliese observe, “which could have spurred administration officials to open up the investigation without an explicit green-light from President Trump.”
Kevin Hassett, the director of the National Economic Council and one of the top candidates to replace Powell as Fed chair, said the investigation is a positive step toward accountability to the public. “I think it’s really important to understand where the taxpayer money goes,” Hassett said outside the White House on Monday morning, according to The Wall Street Journal. Hassett also said Powell is “a good person.”
Should you be worried about a Fed investigation?
If you’re worried about President Trump, central bank independence and what’s next for the Fed, Barclays Head of Global Research Ajay Rajadhyaksha has a simple message for you: “The lesson of 2025 was that investors should ignore the constant noise and headlines and focus on underlying macro data and the sustainability of the AI narrative.”
The S&P 500 generated a total return (price gains plus dividends paid) of 17.9% last year, and the index is off to another solid start so far this year with a gain of 1.8%. That includes one new all-time closing high the widely watched benchmark set during the first full week of trading following the 38 it notched in 2025.
“2026, we think, is more of the same. We do not expect a material risk-off, despite weekend developments,” Rajadhyaksha suggests.
Is the market worried about a Powell investigation?
Wells Fargo economists Porcelli, House and Pugliese agree with Rajadhyaksha that the administration’s most recent effort won’t alter the near-term course of monetary policy. At the same time, they observe, the investigation will make it more difficult for the next Fed chair to build a consensus among the 19 members of the FOMC.
“We suspect the investigation may be an effort by the administration to put pressure on Powell to leave the Board of Governors entirely by May,” they explain. “An open investigation may increase the prospect of him staying to add his weight to preserving central bank independence.”
Still, the Wells Fargo economists say it’s “more likely than not” that Powell leaves the Fed in May after 14 years of service.
Meanwhile, as of midday Monday, January 12, federal funds rate futures pricing reflects a 95.0% probability Powell and company hold the target range for its main benchmark at 3.50% to 3.75% following the next Fed meeting later this month. That’s down from 95.6% on Friday.
“Bonds are the ultimate guardrail,” Rajadhyaksha concludes. “That is why, we believe, fixed income markets have reacted in a measured fashion to the overnight shock.” He adds that market-based measures of inflation are “only slightly higher” as well.
“These reactions are similar to those on August 17, the day the administration attempted to fire Governor Cook,” Rajadhyaksha writes. “If the bond market truly worried that Fed independence had taken a lasting hit, the reaction would arguably have been much bigger.”
