Newly unsealed court documents reveal that Federal Reserve Chairman Jerome Powell may remain on the Federal Reserve Board of Governors until January 2028, provided the criminal investigation against him continues. This possibility directly links the transition of leadership at the Federal Reserve to the outcome of the Justice Department's investigation.

Powell's legal team refuted the government's "coercion" allegations, emphasizing that his resignation was never used as a bargaining chip. Chief Judge James Boasberg ruled the subpoena invalid, stating that the investigation constituted "malicious harassment," and the Justice Department plans to appeal.

Analysts believe that Powell's continued tenure will help stabilize policy expectations and support the dollar in the short term; however, in the medium to long term, if investigations and political interference continue, it may shake market confidence in the Fed's independence and exacerbate the risk of dollar volatility. On Tuesday (March 17) during the Asian session, the dollar index fluctuated narrowly around 99.85.

Government documents: Powell's lawyer says he will remain on the board if the investigation continues.

In documents released last Friday, the Justice Department stated that Powell's personal lawyer conveyed four points during a meeting with U.S. Attorney Jeanning Piro on January 29: the president lacked the Senate vote to confirm a new chairman; Powell believed that the Fed's independence required him not to be forced to resign; if the investigation continued, he would not leave his governorship after his term as chairman ended; and if the investigation was dropped, "different outcomes may be possible."

The Justice Department described this as “coercive” behavior towards U.S. prosecutors. Powell could continue serving as a governor after his term expires (until January 2028) and retain his voting rights on the Federal Open Market Committee until after the midterm elections and even the final year of Trump's second term.

Powell's team denied that he resigned in exchange for the withdrawal of the case, calling the allegations of coercion false.

In another unsealing document, the Federal Reserve refuted the claim: "The U.S. Attorney's Office is incorrect in suggesting that Chairman Powell offered his resignation in exchange for the investigation being dropped through his lawyers."

Powell's lawyers emphasized that his resignation was never used as leverage in negotiations with the Department of Justice, but was merely an expression of concern about the continued impact of the investigation on the Federal Reserve's independence.

Powell publicly called the investigation a "political weapon," intended as retaliation against the Federal Reserve for setting interest rates based on independent judgment rather than catering to the president's preferences.

The chief judge ruled the subpoena invalid, ordering an investigation into malicious harassment.

On March 11, Chief Judge James Boasberg of the U.S. District Court for the District of Columbia ruled the Justice Department's subpoena invalid, writing in a 27-page opinion: "The government has not provided any evidence that Powell committed any crime other than displeasing the president. The only reasonable inference is that the government targeted Powell with malicious or harassing intent."

Boasberg ruled that the investigation lacked a legitimate law enforcement purpose, and the subpoena was dropped. Piro, at a press conference last Friday, called Boasberg a "radical judge" and said the ruling was "out of step with the law," adding that the Justice Department will appeal.

Piro called Boasberg a radical judge

Piro stated, "Jerome Powell is now bathed in an immunity, preventing my office from investigating the Federal Reserve. This is wrong and has no legal basis." When a reporter pointed out that the appeal would continue to obstruct the confirmation of Trump's Federal Reserve nominee, Piro dismissed it, saying, "I don't care. I'm on the legal track, and the rest is just white noise."

Trump retaliated on social media Sunday night, suggesting an investigation into Powell and the contractor, and claiming that Boasberg harbored personal grudges against "his people" and should be removed from the case and subject to serious disciplinary action.

Tillis's obstruction of Walsh's nomination increases Powell's chances of remaining in office.

Trump nominated Kevin Warsh to succeed him as chairman, but since the investigation began, key Republican Senator Tillis on the Senate Banking Committee has vowed to block Warsh's confirmation until the Powell investigation is resolved.

Boasberg's ruling did not change his position: "The appeal will only delay Warsh's confirmation." TD Cowen analysts said that the probability of Powell's extension has increased, and the investigation results and the appeal process will directly determine the direction of the Fed leadership transition.

RSM Chief Economist: Powell's extension may reassure the market.

RSM chief economist Joe Brusuelas believes that Powell's extension of his term may reassure the market: "Central bank independence is a necessity for the modern American economy, and its erosion is not in the interest of the American economy."

Markets are concerned that working with Powell and his successor could lead to disagreements, policy uncertainty, and market volatility. However, extending his term could also maintain stability, especially given the current geopolitical conflicts and inflationary pressures.

Analysis of the path of impact on the US dollar

In the short term, the increased probability of Powell remaining on the board will help stabilize market expectations for a "higher and longer" interest rate path from the Federal Reserve, supporting the dollar index.

However, the medium- to long-term risks should not be underestimated. Every court ruling, Justice Department statement, and Senate obstruction could trigger short-term fluctuations in the dollar. In particular, the continued pressure from Trump and the Justice Department, if it evolves into an open attack on the independence of the Federal Reserve, will weaken market confidence in the long-term credibility of the dollar.



(US Dollar Index Daily Chart, Source: FX678)

Editor's Summary

Newly unsealed documents show that Powell's lawyers stated they would remain on the board until January 2028 if the investigation continues, a move the Justice Department calls "coercion" of U.S. prosecutors. Powell's team refuted this, stating they never offered to resign in exchange for the case being dropped. Chief Judge Boasberg ruled the subpoena invalid, calling the investigation "malicious harassment," and the Justice Department will appeal. Piro called the ruling "out of the law," and Trump countered by suggesting an investigation into Powell and contractors.

With Warsh's nomination facing obstacles, the probability of Powell's continued tenure has increased. The RSM believes that a continued tenure could reassure the market and maintain independence. The transition of leadership at the Federal Reserve is directly linked to the judicial investigation, exacerbating market uncertainty. Investors need to pay attention to the progress of the appeals, the Senate confirmation process, and Powell's ultimate fate, as the continuity of Fed policy faces a test.

At 10:40 Beijing time, the US dollar index is currently at 99.89.