US: Fed subpoena

US Federal Reserve Chair Jerome Powell released a video statement over the weekend claiming personal subpoenas from the Department of Justice were in fact an attack on the ability of the Federal Reserve to set interest rates independently “based on evidence and economic conditions” rather than as “directed by political pressure or intimidation” by US President Donald Trump. Gold surged to a new all-time high on the news and the dollar weakened.

The economist view – Melanie Baker, Senior Economist

US Federal Reserve Chair Jerome Powell released a statement saying that the Fed has been served with subpoenas by the Department of Justice threatening a criminal indictment. This relates to testimony given last June before the Senate Banking Committee which included comments on the Fed buildings renovation project.

The strong words of Powell’s statement signal a high level of concern that Federal Reserve monetary policy independence is under threat.  

In his statement, Powell said that no one is above the law, but that “this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure”.  Things get stronger from there, with Powell saying that “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… 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. 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.”

Needless to say, these are strong words and signal a high level of concern that Federal Reserve monetary policy independence is under threat.  

This move by the Department of Justice appears to be another step along the road of threats to monetary policy independence and follows events including recent comments by US President Donald Trump that the Fed Chair should consult him on rates, his berating of Fed Chair Powell, and the case brought against Fed governor Lisa Cook over mortgage fraud claims (whose hearing is on 21 January 2026). No doubt this has more to run, and President Trump’s response over coming days will be important. Chair Powell’s term ends in May this year, but there is still a question about whether he steps down from the board (as his board term doesn’t run out until 2028). Monetary policy independence is generally seen as a cornerstone of anchored inflation expectations. Threats to monetary policy independence need to be taken seriously and can have significant market and economic consequences.

The fund manager view – Craig Inches, Head of Rates & Cash

The resultant move in US treasuries signalled concern over a Federal Reserve that may be forced into cutting rates when not warranted by the data. Short-dated treasuries declined in yield ever so slightly to reflect the increased probability of a rate cut, however longer dated yields rose, specifically the 30-year area, over concerns that the lack of Fed independence could increase inflation expectations, pushing up the terminal rate assumption. Breakevens also rose, reflecting Chairman Jerome Powells fears that a politically motivated Fed could push up inflation.  

The fund manager view – Trevor Greetham, Head of Multi Asset

The year 2026 is off to a tumultuous start with geopolitical risk wherever you look. In the past week alone, we have seen military intervention in Venezuela, threats to NATO allies over Greenland, civil unrest at home, several unpredictable interventions in the financial and energy sector, and now actions that point to an increased likelihood of monetary policy capture and potentially higher-than-expected inflation.

A big question for 2026 is whether unprecedented policy uncertainty undermines bubble level valuations. We see better value and better long-term opportunities elsewhere in the world.

Historically, the dollar has been a safe haven in times of trouble. With the US at the epicentre, investors are flocking to gold instead.

US equities are benefitting from a tsunami of AI-related earnings and stronger-than-expected growth. A big question for 2026 is whether unprecedented policy uncertainty undermines bubble level valuations. We see better value and better long-term opportunities elsewhere in the world.

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