Trump's Bold Assault on the Fed Ignites Global Market Turmoil

Trump's Bold Assault on the Fed Ignites Global Market Turmoil

A U.S. Justice Department investigation targeting the Federal Reserve has ignited a fierce clash with Chair Jerome Powell, who fired back in a blistering statement, accusing the probe of being a mere pretext to bully the central bank into slashing interest rates more aggressively. Powell revealed that the inquiry threatens him with criminal indictment over a seemingly trivial building renovation project, framing it as a blatant power grab amid his institution's reluctance to pivot as swiftly as President Donald Trump demands. Trump, speaking to NBC, distanced himself from the Justice Department's moves while ramping up his long-standing criticisms of Powell, whose term expires in May and whom the president has vowed to replace with a rate-cut enthusiast .

This escalating showdown has Wall Street on edge, as the Fed's storied independence—long viewed as the bedrock of U.S. economic stability and a pillar of the dollar's global dominance—now hangs in the balance. Markets reacted swiftly on Monday: the U.S. dollar dipped modestly against major currencies, gold surged to a record high, U.S. stock futures tumbled, and traders baked in bets for quicker short-term rate reductions, with the Canadian dollar notably strengthening in response. Damien Boey, portfolio manager at Wilson Asset Management in Sydney, noted Powell's uncharacteristic directness in calling out the pressure, observing that gold's rally, equity jitters, and a steepening yield curve mirror classic signals of threats to central bank autonomy .

Experts warn of dire ripple effects if political meddling persists, potentially stoking inflation expectations, undermining the dollar's safe-haven status, and spiking long-term bond yields to burden the broader economy. Karl Schamotta, chief market strategist at Corpay in Toronto, likened the tactics to "pouring gasoline everywhere and then playing with matches," highlighting how legal threats against officials could erode trust in America's "exorbitant privilege" as the world's reserve currency issuer. Richard Yetsenga of ANZ described a fading "technocratic Fed," with potential upheaval across rates, balance sheets, and banking rules, urging investors to reassess U.S.-heavy portfolios amid these Trump-era institutional shakeups .

While Monday's market wobbles remained contained—prompting some like Andrew Lilley of Barrenjoey to argue Trump lacks real levers beyond rhetoric, leaving FOMC decisions intact—lingering unease persists. Christopher Hodge from Natixis cautioned that markets have shrugged off prior Fed noise but could eventually crack, and Vishnu Varathan of Mizuho admitted uncertainty over the feud's intensity yet affirmed that Fed independence now demands scrutiny at every meeting. Powell's defiant stance, even as a lame duck, sets the tone for his successor and underscores a pivotal moment for global finance.