Fed Independence Crisis: DOJ Probe and Political Pressure Rattle Central Banks

The institutional integrity of the Federal Reserve is facing its most severe test in decades. Reports confirm that the US Department of Justice (DOJ) has issued a grand jury subpoena regarding the renovation of the Fed's headquarters, a move Chairman Jerome Powell has characterized as a politically motivated attack on the central bank's independence.

A “Game Changer” for Monetary Policy?

Former ECB President Jean-Claude Trichet has issued a stark warning, labeling the Trump administration's pressure campaign as “extremely serious” and an attempt to change the fundamental rules of central banking. The conflict comes at a critical juncture, with the White House publicly pressuring the Fed to lower interest rates more aggressively than economic data currently warrants.

Internal Defenses

Minneapolis Fed President Neel Kashkari has publicly defended Powell, stating that the administration's actions over the past year are inextricably linked to monetary policy disagreements rather than genuine oversight. Kashkari emphasized that the Fed's independence is the “bedrock” of US economic stability.

Political Fallout and Market Risk

The escalating tension threatens to disrupt the standard operating procedure of the Fed:

• Congressional Hearings: Signals from Capitol Hill suggest Chairman Powell may miss his statutory semi-annual testimony in February due to the ongoing investigation.
• Supreme Court Involvement: The situation is complicated by upcoming Supreme Court arguments regarding the President's power to fire independent agency officials, a ruling that could alter the Fed's autonomy.

Data Snapshot

• FX Impact: While the USD has remained relatively resilient due to economic data, the “institutional risk premium” could weigh on US assets.
• Safe Havens: Assets like Gold continue to see bid support amid this unprecedented administrative chaos.