DOJ Investigation into Fed Chair Jerome Powell

3 weeks ago 8

Political Pressure and Its Ripple Effects on Cryptocurrency Markets

In a dramatic escalation of tensions between the Trump administration and the Federal Reserve, the Department of Justice (DOJ) has launched a criminal investigation into Fed Chair Jerome Powell.

The probe centers on Powell’s congressional testimony regarding the multi-year renovation of the Federal Reserve’s headquarters in Washington, D.C.. This project has ballooned to an estimated $2.5 billion in costs.

Powell has publicly denounced the action as “unprecedented” and politically motivated, aimed at pressuring the central bank to slash interest rates more aggressively in line with President Donald Trump’s preferences.

The investigation came to light on January 11, 2026, when Powell released a video statement confirming that the Fed had been served with grand jury subpoenas on Friday.

“This should be seen in the broader context of the administration’s threats and ongoing pressure,” Powell stated, emphasizing his commitment to the Fed’s independence and refusing to bow to external influences.

The inquiry, approved by U.S. Attorney Jeanine Pirro, who is a Trump ally, examines whether Powell misled Congress about the project’s scope and spending.

Background: A Long-Simmering Feud

The conflict between Trump and Powell dates back to Powell’s appointment in 2018, with Trump repeatedly criticizing the Fed for not cutting rates fast enough to stimulate economic growth.

In recent months, the administration has ramped up attacks, including public calls for Powell’s removal and scrutiny of the Fed’s operations.

The headquarters renovation, since before Powell’s tenure, has faced criticism for cost overruns, providing what Powell calls a “pretext” for the probe.

Lawmakers from both parties have voiced concerns. Republican Senator Thom Tillis announced he would block any Trump nominees to the Fed until the matter is resolved, while Democrats like Senator Elizabeth Warren have decried it as an assault on central bank independence.

Trump, in an interview, denied involvement, insisting the investigation is unrelated to monetary policy and that Powell’s high rates have “hurt a lot of people.”

The dispute underscores growing concerns over central bank independence, with critics warning that scrutiny of the Fed’s renovation costs risks becoming a political lever amid ongoing tensions between Donald Trump and Jerome Powell over interest rate policy.

Immediate Market Reactions

Financial markets reacted swiftly to the news. U.S. stock futures tumbled, with the S&P 500 and Dow Jones futures dropping 0.5% and Nasdaq futures falling 0.8% in after-hours trading on January 11.

The U.S. dollar weakened against major currencies, while Treasury futures rallied as investors sought safe-haven assets.

Precious metals surged, with gold reaching a record high of $4,585 per ounce and silver exceeding $84, underscoring a flight to “hard assets” amid uncertainty.

This volatility stems from fears that the probe could undermine the Fed’s credibility and independence, potentially leading to politicized monetary policy.

Powell’s term as chair ends in May 2026, and the investigation could complicate Trump’s plans to appoint a more compliant successor.

How This Affects Cryptocurrency

The cryptocurrency sector, often viewed as a hedge against traditional financial instability, has shown resilience and even gains amid the turmoil.

Bitcoin (BTC) rose approximately 1% following the announcement, climbing above $92,000 as investors interpreted the Fed-DOJ clash as a sign of weakening institutional trust.

This aligns with Bitcoin’s narrative as a decentralized alternative to fiat currencies, especially when central banks face political interference.

Analysts note that historical precedents, such as central bank interventions during economic crises, have often benefited cryptocurrencies when fiat systems appear vulnerable.

Prediction markets like Polymarket and Kalshi are downplaying the risk of Powell’s early removal, with odds of his exit before term end remaining low despite the probe.

However, if the investigation drags on or leads to leadership changes, it could accelerate calls for aggressive rate cuts, flooding markets with liquidity and potentially fueling a crypto bull run.

Broader Implications and Outlook

This probe marks a rare instance of direct executive branch action against a sitting Fed chair, raising alarms about the erosion of institutional independence. If successful, it could set a precedent for future administrations to influence monetary policy through legal means, potentially destabilizing global markets.

For crypto enthusiasts, the silver lining is clear: any perceived weakness in traditional finance bolsters the case for decentralized alternatives. With Trump’s administration pushing for lower rates and a pro-crypto stance, the resolution of this saga could usher in a new era of liquidity-driven growth for digital assets.

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