Trump clarifies vs. Powell accusations, Federal Reserve independence facing political test

Escalation of Confrontation

On January 12, Trump publicly denied collaborating with the U.S. Department of Justice to file criminal charges against Federal Reserve Chair Powell, emphasizing that the federal court sending a subpoena to Powell has nothing to do with whether the Fed cuts interest rates. This is a direct response to recent allegations. However, almost simultaneously, Powell stated in an interview that he is facing a criminal investigation and explicitly pointed out that the Department of Justice is threatening the Fed with criminal charges because it refused to follow Trump’s interest rate cut requests. The two sides’ statements present a stark contrast.

The Nature of the Core Conflict

Central Bank Independence vs Political Pressure

The deeper issue behind this confrontation is not the truth of the lawsuit itself, but the unprecedented political pressure on the Federal Reserve’s independence. According to the latest news, the Department of Justice is threatening the Fed with criminal charges in an attempt to force it to change its monetary policy direction. This approach directly challenges the fundamental principle of modern central banking—policy independence.

Politicization of Rate Cuts

The core of Trump’s pressure on the Fed revolves around interest rate cuts. Trump wants the Fed to cut rates to stimulate the economy and asset prices, but Powell has made different judgments based on inflation data and economic conditions. This dispute indicates that the Fed’s policy decisions have been entangled in a political whirlpool.

Market Impact Pathways

This political confrontation could have multi-layered effects on financial markets:

• Dollar Trend: If the Fed is forced to change its policy stance, it could weaken the long-term stability of the dollar
• Interest Rate Expectations: Uncertainty about the Fed’s policy direction increases
• Risk Assets: Risk assets, including cryptocurrencies, may face policy uncertainty premiums
• Institutional Confidence: The weakening of the Fed’s independence could undermine confidence in the U.S. financial system

Summary

Trump’s clarifications coexist with Powell’s accusations, reflecting a deep contradiction between U.S. politics and central bank independence. Regardless of the specific facts of the lawsuit, this confrontation has sent a clear signal to the market: the Fed’s policy space is being eroded by political factors. This is a significant risk factor for global financial markets, including the cryptocurrency market, which rely on the stability of Fed policies. The subsequent focus will be on how the Fed maintains its independence and the ultimate outcome of this political conflict.