Markets, lawmakers scramble amid DOJ inquiry into Fed

Core Viewpoint - The Trump administration's threat of criminal charges against Federal Reserve Chair Jerome Powell raises concerns about the central bank's independence and potential economic implications, particularly regarding mortgage interest rates and the value of U.S. financial assets [1][3][5]. Market Reaction - Market watchers indicate that a potential indictment of Powell could lead to a loss of confidence in the Fed's monetary policy, resulting in increased mortgage interest rates and devaluation of U.S. financial assets [10][11]. - The 10-year Treasury note, which influences mortgage rates, could worsen if the perception of Fed independence declines, leading to reduced demand for U.S. bonds [12][13]. Political Implications - The situation complicates the confirmation process for the next Federal Reserve Governor, who is expected to be aligned with the Trump administration, potentially undermining the Fed's autonomy [2][19]. - Lawmakers from both parties express concern over the administration's actions, with some refusing to confirm any new nominees until the legal matters are resolved [14][15][16]. Expert Opinions - Experts warn that the ongoing inquiry into Powell could mirror situations in emerging markets where political pressures undermine central bank independence, leading to negative economic consequences [11][18]. - The inquiry is viewed as an unprecedented attempt to exert control over the Fed, with significant figures in economics and former Fed chairs expressing alarm over the implications for monetary policy [18][21]. Future Considerations - The Supreme Court is set to hear arguments regarding Fed Governor Lisa Cook's position, which may influence the broader context of Fed independence amid the ongoing investigation into Powell [19][21]. - The perception of the next Fed nominee's independence is likely to be questioned, regardless of their actual stance, due to the political climate surrounding the Fed [22].