U.S. federal prosecutors have launched a criminal investigation into Federal Reserve Chair Jerome Powell, triggering immediate and intense market reactions. The probe, initiated by the Department of Justice under the Trump administration, marks a historically rare event that introduces significant uncertainty at the helm of the world's most influential central bank.
Fed Chair Powell, after a year of silence, has publicly pushed back, stating the investigation is a form of punishment for not adhering to former President Trump's policy preferences. This development emerges during a delicate economic period characterized by elevated interest rates and slowing growth, where markets are already balancing inflation risks with recession concerns.
The immediate financial fallout was severe. Stock futures dropped sharply following the news. In a flight to safety, traders engaged in panic-buying of precious metals, sending gold soaring past $4,600 per ounce and silver exploding to $84 per ounce.
The core issue for markets is the challenge to the Federal Reserve's credibility, continuity, and independence. Investors rely on stable leadership to guide expectations around inflation and interest rates. Even an early-stage investigation of this magnitude weakens policy clarity, and markets are demanding higher compensation for the perceived risk. The focus is squarely on whether the probe could disrupt Federal Reserve leadership, a single question that has injected fresh volatility across equities, bonds, and currency markets.
Looking ahead, the Federal Reserve is still expected to hold interest rates steady at its upcoming meeting on January 28th. However, every communication from the central bank will now carry added weight as investors seek to navigate the heightened uncertainty surrounding its leadership and institutional trust.
