The Federal Reserve's independence crisis escalates: from Trump's verbal pressure to judicial investigation

Trump’s attack on Federal Reserve Chair Jerome Powell enters a new phase. From public criticism of “incompetence or dishonesty” to the Department of Justice launching criminal investigations, this is no longer just political mudslinging but a substantive threat to the independence of the Fed. Behind this conflict is a struggle for control over monetary policy, with implications far beyond the U.S. markets.

Three Stages of Escalating Conflict

Trump’s dissatisfaction with Powell did not develop overnight. Since late last year, he has publicly criticized Powell’s performance multiple times. However, the development on January 12 marked a new phase—the U.S. Department of Justice has initiated a criminal investigation into Powell, ostensibly related to the renovation of the Federal Reserve’s Washington headquarters.

This timing is significant. Powell’s term will end in May 2026, and the criminal investigation, Trump’s public criticism, and doubts about his independence are undoubtedly exerting pressure.

Substantial Threat to Independence

The independence of the Federal Reserve is crucial to the global financial system. When a central bank is directly pressured by political forces, the credibility of its decisions diminishes. Saul Eslake, former chief economist at Bank of America Merrill Lynch Australia, pointed out that Trump’s ongoing attacks on the Fed’s independence have begun to have global effects—long-term bond yields in countries like Australia are rising, and government debt burdens are under pressure.

This means that the weakening of the Fed’s independence is not just an internal U.S. issue but a shock to the global financial system.

Market’s Complex Reactions

Interestingly, the market’s response to this conflict is not straightforward. On one hand, investors worry about the erosion of Fed independence, which pushes up long-term bond yields. On the other hand, Wall Street strategists generally remain optimistic about the economic outlook for 2026—they expect the Fed to cut rates under pressure, aligning with Trump’s policy intentions.

The logic on Wall Street is: by 2026, a “win-win” scenario might emerge—rate cuts, tax incentives, and AI productivity gains all happening simultaneously. Goldman Sachs projects that S&P 500 earnings per share will grow by 12%. But this optimism hinges on the assumption that the Fed will ultimately compromise under political pressure.

Indirect Impact on the Cryptocurrency Market

This conflict could have several potential effects on the crypto market:

• Liquidity Expectations: If the Fed is forced to accelerate rate cuts, more liquidity will be released, generally benefiting risk assets, including cryptocurrencies.
• Dollar Trends: Diminished Fed independence could weaken confidence in the dollar, boosting the attractiveness of foreign assets denominated in other currencies.
• Policy Uncertainty: Politicization of central bank decisions will increase market volatility, presenting both risks and opportunities for traders.
• Long-term Confidence: If the independence of global central banks becomes a systemic risk, investors may increase allocations to decentralized finance and crypto assets.

Summary

Trump’s pressure on Powell has escalated from rhetoric to a judicial level, representing not just a political conflict but a direct threat to the Fed’s independence. In the short term, markets may remain optimistic due to rate cut expectations, but in the long run, weakening central bank independence will increase the fragility of the global financial system. For the crypto market, this means potential liquidity releases but also higher uncertainty. The key going forward is to observe how Powell responds to these pressures and whether the Fed will alter its policy stance under political influence.