Federal Reserve Independence Crisis: The Political Storm Behind Powell's Investigation and the Power Transition

Federal Reserve Chair Powell Defends Himself Again. On January 12th, he candidly stated that the reason for his criminal investigation is that the Fed’s interest rate decisions are based on economic data rather than political will. This is not just a personal response but a public warning about the unprecedented threats to the Fed’s independence.

The Independence Battle: Political Pressure and Policy Decisions

Powell’s Stance

According to the latest news, Powell emphasizes that he has always performed his duties impartially and will continue to uphold this principle. He explicitly states that the fact of facing criminal charges is “unprecedented” in itself and views it as a precursor to broader threats from the current US government against the Federal Reserve.

The key message here is clear: Powell believes he is being investigated precisely because he insists that the Fed should do what it is supposed to do—base interest rate decisions on economic assessments rather than political considerations.

The True Face of Political Pressure

From related reports, this is not an isolated incident. The Trump administration has maintained a tough stance toward the Fed:

• The Treasury Secretary has publicly stated that there will only be one rate cut this year, while Powell has responded multiple times that the Fed will cut at least three times.
• Trump has confirmed that the next Fed Chair candidate has been decided.
• Powell will step down in May, with the new Chair expected to take office in June.

Putting these pieces together creates a clear picture: a power transition is underway, and the policy orientation of the new Chair may differ from Powell’s.

What the Market is Waiting For

The Suspense Over Rate Cut Expectations

According to the latest news, there are significant disagreements in the market regarding rate cut expectations for 2026:

This divergence itself reflects market anxiety. If the new Chair leans toward policies aligned with the Trump administration, the number of rate cuts could be reduced, which would be bearish for risk assets including cryptocurrencies that rely on liquidity.

Risks to Policy Continuity

The independence of the Fed is not just a political issue; it directly impacts policy continuity. When political pressure becomes part of decision-making, market predictability diminishes, and volatility increases.

According to reports, the market is already digesting this uncertainty. Recent sideways consolidation reflects waiting for more signals—whether the new Chair will be dovish or hawkish.

Key Variables for the Future

Powell’s own statements reveal a core issue: whether future rate decisions will continue to be evidence-based or succumb to political influence.

The answer largely depends on who the new Chair is and their policy stance. If the new Chair favors political compromise, market confidence in Fed policies may decline, putting pressure on risk assets. Conversely, if the new Chair maintains the tradition of independence, market confidence could be restored.

Summary

Powell’s investigation essentially highlights the political challenges to the Fed’s independence. His emphasis on “based on economic assessments rather than political will” underscores the importance of this principle.

From a market perspective, the key is not Powell’s personal situation but the uncertainty about the Fed’s policy trajectory after his departure. The confirmation of the new Chair candidate by the Trump administration indicates that the power transition is settled. Markets should closely monitor the new Chair’s policy inclinations, as this will directly determine the pace of rate cuts in 2026 and influence the overall trend of risk assets.

In the short term, this uncertainty will likely increase market volatility. But in the long run, the Fed’s tradition of independence is strong enough that the system will resist political pressures to some extent. The critical factor will be how the new Chair balances political pressure and policy independence in the first few months in office, which will shape long-term market confidence in the Fed.