Chair Powell is not going to take the bullying from the White House lying down and shown a lot of resolve and courage by fighting back.
The threat to the Fed’s independence by the serving of subpoenas threatening criminal indictment, and Chair Powell’s decision to fight back, the shooting of a US citizen in Minnesota by ICE (The jury is out on whether it was legitimate), the Venezuelan overreach and the chaos in Iran are signs that the markets cannot ignore any longer. I believe that there are simply too many exogenous factors that will cap the markets, and I’m expecting this week to be turbulent and will add hedges and stop losses.
In his own version of "Do not go gentle into that good night", Fed chair Powell showed a lot of moxie and resolve, pitiably lacking in our esteemed legislators and at the times the courts, by responding forcefully to the subpoenas from the justice department threatening a criminal indictment over cost overruns for a multi-year construction project.
Powell decided that enough was enough and went front and center with this extraordinary statement, and I quote from the Wall Street Journal
This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; theFed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.
To recap, here are the events that led to the first of its kind confrontation. The Fed is never completely independent, there is always pressure, but the constant demonization and abuse of the Powell from the President took the pressure to a new level. In July 2025, Director of the United States Office of Management and Budget, Russ Vought criticized and accused Powell of overspending on upgrades to the Fed’s headquarters while targeting Powell on social media. Vought, also accused Powell of being deceptive while testifying about the cost overruns to congress.
From an article in the Heisenberg report:
Vought is known as one of the principal authors of Project 2025 and a key figure representing the White House’s stand during last year’s government shutdown, quickly moved to formalize the allegations in a letter alleging Powell misled Congress about the restoration effort. Powell responded to Vought with a fact sheet about the project, knowing full well the kerfuffle had nothing to do with renovation costs — the administration’s point was to force Powell’s resignation or, failing that, conjure an excuse to fire him for cause. The next week, The President showed up at the construction site where he and Powell, donning hard hats, engaged in an ad hoc, televised debate about the true cost of the renovations. A few days later, Adriana Kugler resigned from the Fed board, freeing up a seat for the President to fill. Shortly after that, at the urging of Bill Pulte, the government moved to fire Lisa Cook for alleged mortgage fraud. Cook refused to leave and promptly sued the administration.
The furore seemed to have died down after the Fed cut rates three times last year, but the Sunday threat of inditement was the tipping point. Powell said Sunday evening that the Federal Reserve was served grand jury subpoenas by the Justice Department threatening a criminal indictment ostensibly in connection to Powell’s June congressional testimony regarding renovations to the Eccles building. This is what Chair Powell said on camera, facing this onslaught.
No one — certainly not the chair of the Federal Reserve — is above the law, but this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation,” he went on, adding that “Public service sometimes requires standing firm in the face of threats.
The lack luster response from the markets suggests that even the Fed Chair publicly calling out the President for intimidating a Fed official on false pretenses to influence monetary policy is not shocking any more. The fact that he was carrying out his duties and looking out for the American economy, was not important....
Still, this is not the last of it and the White House or the justice department will take this further. It could end up in the Supreme court and also likely incentivize Chair Powell from not relinquishing his Governor's role, which is still open after his term gets over in May 2026 as Fed Chair.
In my opinion, this is not good for the markets and the economy, and I do not believe the markets are right in brushing it aside the way it did after a 0.5% drop pre market.
