Global financial markets reacted with volatility on Monday, March 20, 2025, following the startling announcement of a formal congressional investigation into Federal Reserve Chair Jerome Powell. The US Dollar Index (DXY) fell approximately 0.4% in early trading, marking its biggest one-day decline since mid-December, as investors repriced the risk premium associated with US assets amidst the political uncertainty.
The bipartisan congressional committee announced its investigation late Wednesday, focusing on the consistency and transparency of the Federal Reserve's policy guidance over the past 18 months. Specifically, lawmakers are examining the rationale behind recent pauses in interest rate adjustments and internal deliberations regarding balance sheet reduction (quantitative tightening). The committee has requested transcripts, meeting minutes, and internal communications from the Fed.
Chairman Powell stated the Fed will cooperate fully with the oversight process, emphasizing the institution's commitment to its dual mandate. However, the probe has escalated, with Powell revealing on Sunday that federal prosecutors had served the Fed with grand jury subpoenas linked to his June testimony about a $2.5 billion renovation of the Fed's headquarters. Powell described the investigation as a "pretext" reflecting broader White House pressure for faster interest rate cuts.
The immediate market impact was significant. Safe-haven assets rallied sharply, with gold surging to a fresh record high above $4,600 an ounce. The Swiss franc strengthened 0.4%, and US Treasury yields dipped, particularly on the short end of the curve. S&P 500 futures fell 0.6% as equity markets slid.
In Asia, regional currencies exhibited a surprisingly subdued stance despite the dollar's retreat. The Japanese yen traded within a tight band, while the Chinese yuan remained closely managed. The Korean won and Singapore dollar showed only marginal appreciation. Analysts attribute this caution to regional economic headwinds and the fact that the dollar's weakness stemmed from political risk rather than positive economic shifts in Asia. The Japanese yen slid to a one-year low of 158.19 per dollar, pressured by domestic factors including inflation exceeding the Bank of Japan's target for 44 consecutive months.
Expert analysis underscores the core concern. Dr. Anya Sharma, a former IMF economist, noted, "markets are highly sensitive to perceptions of political influence over central bank decisions. The Federal Reserve's credibility is its most critical asset." The probe's market impact may hinge more on perception than its eventual findings, challenging the Fed's perceived operational independence.
The implications are global. European and UK central bankers are monitoring spillover effects, while emerging markets with dollar-denominated debt face a complex scenario: a weaker dollar eases debt burdens but associated uncertainty could trigger capital outflows. The path forward depends on the probe's duration and conclusions, with markets now in a state of vigilant uncertainty.
