Fed Under Fire: Trump Turns Up the Heat on Powell

Another chapter in the very one sided feud between Jerome Powell and Donald Trump has just unfolded, and this might be the biggest one yet. For some context, Jerome Powell is the chairman of the US Federal Reserve, the body responsible for setting US interest rates. Over the past 12 months, the Fed has taken a conservative stance on rate cuts, much to President Trump’s frustration.

Trump has been vocal in demanding lower rates, repeatedly pressuring Powell to move faster and often referring to him as “Mr Too Late.” Powell has mostly ignored the noise and stuck to a data driven approach. That is, until now. Over the past year, the Fed has had to navigate tariff uncertainty and a lack of data during the longest government shutdown in US history.

This week, things escalated. The Department of Justice served the Federal Reserve with grand jury subpoenas targeting Powell. Not for monetary policy decisions, but linked to testimony concerning renovation work on some Federal Reserve buildings. Still, the message is clear. It is a threat. Powell has refused to bow to Trump’s pressure and this looks like retaliation.

For what feels like the first time, Powell responded directly. In a video statement posted by the Federal Reserve, he addressed the situation head on.

He 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.”

He added, “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by political pressure or intimidation.”

Powell is holding his ground and shows no signs of changing course. He will remain chairman until May, with several rate meetings still to come. The next is scheduled for the end of January. Markets are currently pricing in a 95% chance of no change in rates, despite the political drama.

This is a purely political move from the DOJ and Trump. While it adds volatility, investors are not expecting it to impact interest rate policy in the near term. Trump is also expected to announce his nominee for the next Fed chair this month. Based on current signals, it is likely to be someone aligned with Trump’s aggressive stance on cuts.

Markets responded swiftly. US equity futures fell on the news, while gold and silver pushed to fresh all time highs. Bitcoin broke above $92K as capital rotated into hard assets.

The battle between Trump and Powell has reached a new level. Time will tell what comes next.

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