Trump suddenly attacks Powell! With only 5 months left before the replacement, why is he in such a hurry?
2026-01-12 20:26:57
On Monday (January 12), global financial markets were unsettled, with the US dollar index experiencing its biggest drop in three weeks, gold prices soaring to a record high, and US stock futures falling across the board. The immediate trigger for this series of dramatic fluctuations was the US Department of Justice's investigation into Federal Reserve Chairman Jerome Powell and the escalating pressure from US President Trump. The legal battle between the two sides over the Fed's overrun on its building renovation budget has been widely interpreted by the market as a "final showdown" concerning the independence of the Fed's monetary policy, with potential impacts far exceeding the event itself, shaking global investors' core beliefs in the stability of the US system.
The apparent cause of this incident was a costly renovation project at the Federal Reserve headquarters building. The project, which began several years ago, aimed to renovate and integrate two historic buildings, with the initial goal of consolidating office space and saving on long-term lease expenses. However, due to a combination of factors, including rising labor and material costs, requirements for historic building preservation, and the unexpected discovery of asbestos contamination, the total project budget surged from the initial estimate.
Senior Trump administration officials had previously publicly criticized the project for cost overruns of "approximately $700 million, and still rising," implying extravagance and waste. However, according to the Federal Reserve's public statements and project documents, the so-called "rooftop terrace garden" is actually a green roof with rainwater management functions, and unnecessary designs such as water features originally planned have been eliminated. More significantly, the project has been subject to regular review by the Federal Reserve's Office of the Inspector General, and its expenditures fall within the statutory authority of the Federal Reserve.
Therefore, when the Justice Department recently issued a grand jury subpoena to the Federal Reserve, threatening criminal charges against Powell for his testimony to Congress last June regarding the project, this professional audit quickly escalated into a political event. In a rare public video statement Sunday evening, Powell directly addressed its nature: "The threat is a result of the Federal Reserve setting interest rates based on its best judgment in serving the public, not on the president's preferences… Those (construction issues) are just excuses." The market immediately grasped the deeper meaning: this was no longer a technical debate about budget overruns, but rather the White House attempting to directly intervene in interest rate decisions through legal threats .
Jerome Powell's term as Federal Reserve Chairman will expire this May, and Trump has publicly stated that he will nominate a supporter of "significant interest rate cuts" to succeed him. So why did the Trump administration choose this time to launch such a fierce attack ? Behind this lies a complex interplay of political cycles, economic demands, and power struggles.
First, the political clock surrounding the midterm elections is the core source of pressure. Trump's domestic policy agenda for his second term heavily relies on a loose monetary environment to support economic growth and alleviate the burden of borrowing costs for the public. Although the market previously expected the Federal Reserve to cut interest rates this year, the latest forecasts from major institutions (such as Goldman Sachs and Morgan Stanley) have generally postponed the first rate cut from the first quarter to June. For Trump, waiting until his nominated "dovish" chairman takes office before taking action means that the effects of rate cuts may not be fully apparent before the November midterm elections. He needs the Federal Reserve to immediately and more quickly shift to easing to create a favorable economic environment for the election. Market analysis points out that the magnitude and speed of rate cuts that Trump hopes to see are far faster than the "cautious" path planned by the Federal Reserve based on economic data.
Secondly, this move aims to pave the way for subsequent personnel arrangements and establish a "deterrent" precedent. The strong pressure on the current chairman sends a clear signal: future Fed leadership must align with the policy preferences of the administration. Peter Conti-Brown, a Fed historian at the University of Pennsylvania, points out that this move is "a low point in President Trump's term and a low point in the history of the Fed." By challenging Powell's authority, Trump is attempting to redefine the boundaries of the Fed chairman's "accountability," clearing the way for a complete overhaul of the Fed Board of Governors. In fact, Republican Senator Tillis has stated that he will oppose any Fed nominee Trump makes until this matter is resolved.
Finally, Powell's legal background and tough response rapidly escalated the conflict. As a professionally trained lawyer, Powell is well-versed in legal procedures and institutional boundaries. His choice to publicly and forcefully accuse political interference, rather than making private compromises, was not only to defend his personal reputation but also to uphold the institutional legacy of the Federal Reserve as an institution. His counterattack brought the conflict into the open, forcing the markets, Congress, and the judicial system to take a stand. As Damian Boyle, portfolio manager at Wilson Asset Management in Sydney, put it: "Chairman Powell changed his approach to dealing with Trump's threats, this time choosing to confront the elephant in the room—the Fed's failure to adjust interest rates according to the president's wishes."
The initial reaction of the financial markets to this event clearly reflects deep concerns about the damage to the "independence of the Federal Reserve".
1. The "vote of confidence" in the US dollar and US Treasuries falters: The dollar index fell sharply, marking its biggest drop in three weeks. This reflects investors hedging against the risks posed by the US government's continued attacks on its core financial institutions. Carl Shamotta, chief market strategist at Corpay in Toronto, warned that this move could have "unintended consequences," including pushing up inflation expectations, eroding the dollar's safe-haven appeal, and ultimately causing long-term bond yields to soar, which in turn increases borrowing costs across the economy. Investors are concerned that politically driven monetary policy could damage the dollar's fundamental value.
2. Gold and Volatility: Classic Safe-Haven Pattern Triggered: Gold prices surged to record highs, a classic signal of heightened market uncertainty and challenges to the credit system. Meanwhile, US stock futures fell, particularly pressured interest rate-sensitive sectors. Market volatility suggests investors are reassessing whether the "everything rally" can continue in the face of systemic risks.
3. Divergent Institutional Views, but Caution Suggests a Formation of Consensus: While Monday's actual market volatility was relatively mild, some analysts believe this precisely reflects Trump's "lack of other leverage," with interest rates ultimately determined by a majority of the Federal Open Market Committee (FOMC) members. However, many more institutions expressed long-term concerns. ANZ Group Chief Economist Richard Yetsenga pointed out that the trend is quite clear—"The technocratic Fed we've understood over the past few decades is fading from view." This means that not only interest rate policy, but also the Fed's balance sheet management and banking supervision functions may enter a period of turbulence. Vishnu Varatan, Head of Macro Research for Asia (excluding Japan) at Mizuho Bank, stated, "The issue of the Fed's independence is now clearly present and may need to be reassessed every few meetings in the future."
The situation will unfold along three main lines: law, politics, and the market, and its outcome will profoundly shape the global financial landscape.
Legal battleground: The investigation into Powell will face rigorous legal scrutiny. If the judicial process is widely perceived as being unduly influenced by politics, its credibility will be severely damaged. Meanwhile, Trump's attempt to fire another Federal Reserve governor, Lisa Cook, is about to be heard in the Supreme Court. These two cases are interconnected, and the Supreme Court's ruling will draw a crucial legal line regarding the president's authority to interfere with the Federal Reserve .
On the political front: Powell's tough stance places him on the moral high ground in defending the central bank's independence. This could inspire greater unity within the Fed to resist external pressure and even influence the Senate's vetting of Trump's future nominees . This public conflict also forces both parties in Congress to take a stand; the Fed's independence will depend on the effectiveness of checks and balances within the political system.
Market and Economic Frontline: In the short term, uncertainty will suppress risk appetite and exacerbate asset price volatility. In the long term, the biggest risk lies in the potential for damage to the Federal Reserve's credibility to push up the long-term risk premium in the United States . If the market begins to question the Fed's ability to resist political pressure and anchor inflation, then the international status of the dollar and the financing costs of US Treasury bonds will face structural challenges. As one economist put it, "The market has already digested too much noise about the Fed and its independence, and it's likely to do so again, but at some point, things will fall apart."
The conflict between Trump and Powell has far surpassed personal grudges or policy disagreements. It is a stress test of a core American economic governance rule—whether the central bank should be independent of short-term political pressure. Regardless of how this "final showdown" concludes, financial markets have received a clear signal: the certainty of the "technocratic" era is fading, and the penetration of geopolitics and domestic politics into monetary policy will become a key variable in the new era. For global investors, in addition to focusing on economic data and the interest rate dot plot, interpreting the power struggle in Washington has become an unavoidable new lesson in asset pricing.
I. The Eye of the Storm: A "Weaponized" Audit of Building Renovation
The apparent cause of this incident was a costly renovation project at the Federal Reserve headquarters building. The project, which began several years ago, aimed to renovate and integrate two historic buildings, with the initial goal of consolidating office space and saving on long-term lease expenses. However, due to a combination of factors, including rising labor and material costs, requirements for historic building preservation, and the unexpected discovery of asbestos contamination, the total project budget surged from the initial estimate.
Senior Trump administration officials had previously publicly criticized the project for cost overruns of "approximately $700 million, and still rising," implying extravagance and waste. However, according to the Federal Reserve's public statements and project documents, the so-called "rooftop terrace garden" is actually a green roof with rainwater management functions, and unnecessary designs such as water features originally planned have been eliminated. More significantly, the project has been subject to regular review by the Federal Reserve's Office of the Inspector General, and its expenditures fall within the statutory authority of the Federal Reserve.
Therefore, when the Justice Department recently issued a grand jury subpoena to the Federal Reserve, threatening criminal charges against Powell for his testimony to Congress last June regarding the project, this professional audit quickly escalated into a political event. In a rare public video statement Sunday evening, Powell directly addressed its nature: "The threat is a result of the Federal Reserve setting interest rates based on its best judgment in serving the public, not on the president's preferences… Those (construction issues) are just excuses." The market immediately grasped the deeper meaning: this was no longer a technical debate about budget overruns, but rather the White House attempting to directly intervene in interest rate decisions through legal threats .
II. A critical moment: Why can't Trump "wait" for these 5 months?
Jerome Powell's term as Federal Reserve Chairman will expire this May, and Trump has publicly stated that he will nominate a supporter of "significant interest rate cuts" to succeed him. So why did the Trump administration choose this time to launch such a fierce attack ? Behind this lies a complex interplay of political cycles, economic demands, and power struggles.
First, the political clock surrounding the midterm elections is the core source of pressure. Trump's domestic policy agenda for his second term heavily relies on a loose monetary environment to support economic growth and alleviate the burden of borrowing costs for the public. Although the market previously expected the Federal Reserve to cut interest rates this year, the latest forecasts from major institutions (such as Goldman Sachs and Morgan Stanley) have generally postponed the first rate cut from the first quarter to June. For Trump, waiting until his nominated "dovish" chairman takes office before taking action means that the effects of rate cuts may not be fully apparent before the November midterm elections. He needs the Federal Reserve to immediately and more quickly shift to easing to create a favorable economic environment for the election. Market analysis points out that the magnitude and speed of rate cuts that Trump hopes to see are far faster than the "cautious" path planned by the Federal Reserve based on economic data.
Secondly, this move aims to pave the way for subsequent personnel arrangements and establish a "deterrent" precedent. The strong pressure on the current chairman sends a clear signal: future Fed leadership must align with the policy preferences of the administration. Peter Conti-Brown, a Fed historian at the University of Pennsylvania, points out that this move is "a low point in President Trump's term and a low point in the history of the Fed." By challenging Powell's authority, Trump is attempting to redefine the boundaries of the Fed chairman's "accountability," clearing the way for a complete overhaul of the Fed Board of Governors. In fact, Republican Senator Tillis has stated that he will oppose any Fed nominee Trump makes until this matter is resolved.
Finally, Powell's legal background and tough response rapidly escalated the conflict. As a professionally trained lawyer, Powell is well-versed in legal procedures and institutional boundaries. His choice to publicly and forcefully accuse political interference, rather than making private compromises, was not only to defend his personal reputation but also to uphold the institutional legacy of the Federal Reserve as an institution. His counterattack brought the conflict into the open, forcing the markets, Congress, and the judicial system to take a stand. As Damian Boyle, portfolio manager at Wilson Asset Management in Sydney, put it: "Chairman Powell changed his approach to dealing with Trump's threats, this time choosing to confront the elephant in the room—the Fed's failure to adjust interest rates according to the president's wishes."
III. Market Reaction: Risk Aversion Rises, "US Assets" Face a Test of Trust
The initial reaction of the financial markets to this event clearly reflects deep concerns about the damage to the "independence of the Federal Reserve".
1. The "vote of confidence" in the US dollar and US Treasuries falters: The dollar index fell sharply, marking its biggest drop in three weeks. This reflects investors hedging against the risks posed by the US government's continued attacks on its core financial institutions. Carl Shamotta, chief market strategist at Corpay in Toronto, warned that this move could have "unintended consequences," including pushing up inflation expectations, eroding the dollar's safe-haven appeal, and ultimately causing long-term bond yields to soar, which in turn increases borrowing costs across the economy. Investors are concerned that politically driven monetary policy could damage the dollar's fundamental value.
2. Gold and Volatility: Classic Safe-Haven Pattern Triggered: Gold prices surged to record highs, a classic signal of heightened market uncertainty and challenges to the credit system. Meanwhile, US stock futures fell, particularly pressured interest rate-sensitive sectors. Market volatility suggests investors are reassessing whether the "everything rally" can continue in the face of systemic risks.
3. Divergent Institutional Views, but Caution Suggests a Formation of Consensus: While Monday's actual market volatility was relatively mild, some analysts believe this precisely reflects Trump's "lack of other leverage," with interest rates ultimately determined by a majority of the Federal Open Market Committee (FOMC) members. However, many more institutions expressed long-term concerns. ANZ Group Chief Economist Richard Yetsenga pointed out that the trend is quite clear—"The technocratic Fed we've understood over the past few decades is fading from view." This means that not only interest rate policy, but also the Fed's balance sheet management and banking supervision functions may enter a period of turbulence. Vishnu Varatan, Head of Macro Research for Asia (excluding Japan) at Mizuho Bank, stated, "The issue of the Fed's independence is now clearly present and may need to be reassessed every few meetings in the future."
IV. Future Outlook: A Systemic War of Attrition with No Winners
The situation will unfold along three main lines: law, politics, and the market, and its outcome will profoundly shape the global financial landscape.
Legal battleground: The investigation into Powell will face rigorous legal scrutiny. If the judicial process is widely perceived as being unduly influenced by politics, its credibility will be severely damaged. Meanwhile, Trump's attempt to fire another Federal Reserve governor, Lisa Cook, is about to be heard in the Supreme Court. These two cases are interconnected, and the Supreme Court's ruling will draw a crucial legal line regarding the president's authority to interfere with the Federal Reserve .
On the political front: Powell's tough stance places him on the moral high ground in defending the central bank's independence. This could inspire greater unity within the Fed to resist external pressure and even influence the Senate's vetting of Trump's future nominees . This public conflict also forces both parties in Congress to take a stand; the Fed's independence will depend on the effectiveness of checks and balances within the political system.
Market and Economic Frontline: In the short term, uncertainty will suppress risk appetite and exacerbate asset price volatility. In the long term, the biggest risk lies in the potential for damage to the Federal Reserve's credibility to push up the long-term risk premium in the United States . If the market begins to question the Fed's ability to resist political pressure and anchor inflation, then the international status of the dollar and the financing costs of US Treasury bonds will face structural challenges. As one economist put it, "The market has already digested too much noise about the Fed and its independence, and it's likely to do so again, but at some point, things will fall apart."
The conflict between Trump and Powell has far surpassed personal grudges or policy disagreements. It is a stress test of a core American economic governance rule—whether the central bank should be independent of short-term political pressure. Regardless of how this "final showdown" concludes, financial markets have received a clear signal: the certainty of the "technocratic" era is fading, and the penetration of geopolitics and domestic politics into monetary policy will become a key variable in the new era. For global investors, in addition to focusing on economic data and the interest rate dot plot, interpreting the power struggle in Washington has become an unavoidable new lesson in asset pricing.
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