2026-01-13 14:40:00
On Monday, global markets kicked off with a bang. Reports that the Federal Reserve chair is under criminal investigation sent shockwaves through markets.
Gold blasted through $4,600, the dollar slid, and stocks somehow still managed to close at record highs.
Welcome to one of the strangest days in modern financial history—and a crucial lesson in why Fed independence matters for every trade you make.
What Actually Happened
On Friday, January 9, 2026, the U.S. Justice Department served the Federal Reserve with grand jury subpoenas that could lead to criminal charges.
The official explanation centered on Chair Jerome Powell’s June 2025 congressional testimony about the Fed’s headquarters renovation, a project whose cost ballooned from under $2 billion to $2.5 billion.
But in an unprecedented video statement released Sunday evening, Powell called the probe “a pretext for political intimidation.” He went on to say the threat of criminal charges was a direct consequence of the Fed setting interest rates based on its best judgment of what serves the public, rather than following the president’s preferences.
The backdrop matters here. President Trump has spent months publicly criticizing Powell for not cutting rates fast enough.
The Fed did deliver three rate cuts in late 2025, bringing policy rates down to 3.5% to 3.75%, but Trump’s been pushing for much deeper cuts to stimulate growth and reduce government borrowing costs. He’s repeatedly floated the idea of firing Powell, whose term ends in May.
When asked about the investigation, Trump denied having prior knowledge of it but added that Powell should feel pressure because, in his view, interest rates remain far too high.
Why Central Bank Independence Actually Matters
Politicians almost always want lower interest rates heading into elections. Cheaper money lifts growth, markets feel good, and voters stay happy.
The problem is that when central banks start doing exactly what presidents want, inflation has a nasty habit of spiraling out of control and turning boom times into painful busts.
History makes this clear. In the early 1970s, President Nixon leaned hard on Fed Chair Arthur Burns to keep rates low ahead of the 1972 election. It worked in the short term, but it also helped ignite the inflation that took nearly a decade to crush. Time and again, countries with independent central banks end up with lower and more stable inflation than those where politicians run monetary policy.
More recently, Turkish President Erdoğan pushed for low interest rates even as inflation surged toward 85%, a move that quickly compounded the damage. It wasn’t until he loosened his grip in 2023 and allowed policy to turn more orthodox that inflation began to ease, and even then, it required extremely high interest rates—north of roughly 40–50%—to start cleaning up the mess.
That’s why using a criminal investigation to influence Fed policy crosses a line. This isn’t routine political criticism or even talk of replacing a central banker. It’s the power of the legal system being aimed directly at monetary policy decisions, and that changes the stakes in a way markets can’t ignore.
How Markets Split on the News
Monday’s trading showed a remarkable divide between assets.
Stocks panicked, then shrugged. S&P 500 futures opened down 0.4%, and the Dow was off by more than 300 points early in the session. By the close, none of that mattered. The S&P 500 finished up 0.2% at a fresh record of 6,977, sending a message that equity markets see this as political theater rather than a development that will materially change Fed policy.
Safe havens went ballistic. Gold went vertical, breaking above $4,600 an ounce for the first time, while silver surged past $85. Those moves suggest something stocks weren’t fully pricing in: a growing political risk premium tied to U.S. institutions. When investors start questioning the rules of the game, they tend to reach for hard assets.
The dollar weakened. The Dollar Index slipped while Treasury yields climbed as investors demanded extra compensation for uncertainty. If confidence in the Fed’s independence erodes, it inevitably puts pressure on the dollar’s role as the world’s reserve currency.
What Traders Need to Know
Political risk isn’t just about wars and elections. When core institutions like the Fed get targeted with criminal probes, markets price in a new kind of uncertainty. Gold rallying to records while stocks hit highs tells you different investors see different risks.
The dollar’s strength depends on credible institutions. Currency markets reacted more negatively than equities because they understand something crucial: The dollar’s global dominance rests partly on faith that the Fed makes data-driven decisions, not politically motivated ones.
This isn’t over in May. Even if Powell’s term expires naturally, the precedent matters. If criminal probes become a tool for pressuring central banks, that changes how every future Fed chair operates. Markets are pricing in that longer-term institutional shift.
Safe havens work in institutional crises, too. Beginner traders often think gold is just an inflation hedge. But it equally protects against political uncertainty and institutional breakdown. Monday proved that again.
What’s Next
Powell vowed to stand firm. Republican Senator Thom Tillis said he’ll block all Fed nominees until this “legal matter is fully resolved.” Later in January, the Supreme Court is scheduled to weigh a case tied to Trump’s efforts to expand his ability to remove Fed officials, including Governor Lisa Cook—a decision that could set crucial precedents.
The Fed’s next meeting is January 27-28. No rate change is expected, but Powell’s press conference will be intensely scrutinized for any hint that political pressure is working.
For traders, watch how this institutional battle plays out. Escalation supports gold and weakens the dollar. Resolution could trigger a relief rally across assets. But the longer this drags on, the more markets will demand a premium for political risk in U.S. assets.
And remember: Monetary policy affects every market you trade. When the people setting rates are under criminal investigation, that’s not background noise—that’s your trade environment fundamentally shifting.
