Market shocks are coming thick and fast. News that Federal Reserve Chair Jerome Powell faces a criminal investigation threatens to revive the “sell America” trade but there’s reason to believe the central bank chief can face down his detractors, at least in the short term.
Forget a relaxing start to the week, traders had their Sunday plans upended by a video statement from Powell who claimed he was facing the threat of criminal charges regarding a building renovation as retaliation for
defying President Donald Trump’s wishes over interest rates. While Trump denied knowledge of the inquiry, markets are pricing in a greater threat to the central bank’s independence—with the dollar sinking and gold surging.
Considering the U.S.’s economic credibility is at stake, the reaction looks relatively muted. The yield on the benchmark 10-year Treasury note was rising early Monday but only to 4.2%, suggesting there isn’t panic selling of government debt.
Investors might be counting on resistance to the White House. Most importantly, Republican Sen. Thom Tillis warned he would oppose the confirmation of any nominee for the Fed until the investigation is resolved. As a member of the Senate Banking Committee he could potentially block Trump’s appointment of Powell’s successor when the central bank chair’s term expires in May.
The conflict also puts pressure on big bank executives as they report earnings this week. Wall Street CEOs have previously rallied behind Fed independence and could do so again. JPMorgan Chase boss Jamie Dimon has arguably swayed Trump before—the president watched an interview in which Dimon warned of a potential recession caused by tariffs shortly before suspending import levies in April last year.
Taking the fight public might win Powell some breathing space and reassure investors for now. But the real test for Fed independence is what happens when he has to step down. This week’s trading action might only be a preview for bigger shocks ahead.
—Adam Clark
***Join Barron’s senior managing editors Lauren R. Rublin and Ben Levisohn today at noon for a discussion with Barron’s Roundtable member John W. Rogers Jr., founder, chairman, Co-CEO, and chief investment officer of Ariel Investments. John is a long-time investor in small- and mid-cap stocks, and will discuss his favorite investment ideas for 2026. Sign up here.
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A New Fed Might Not Please the President
The Federal Reserve said the Justice Department sent it grand jury subpoenas on Friday,
threatening a criminal indictment tied to Chair Jerome Powell’s testimony before the Senate last June, an escalation in the Trump administration’s efforts to pressure the central bank.
- Powell called the investigation—which partly concerned a multiyear project to renovate the Fed’s headquarters in Washington, D.C.—a pretext as part of President Donald Trump’s campaign to pressure the U.S. central bank to lower interest rates.
- The move comes amid anticipation about Trump’s pick to replace Powell at the central bank. But even if the president gets the Fed chair he wants in 2026, he may not get the monetary policy he wants. Today’s economy will make aggressive easing difficult unless the data demands it. Inflation remains above target, with the latest consumer price index data coming this week.
- In this environment, the Fed’s default posture is caution. Cutting rates modestly is plausible. Cutting deeply isn’t. The misconception is that a new chair can reset policy direction on arrival. In reality, the chair’s power lies in agenda-setting, coalition-building, and communication, not in overruling the policy committee.
- A more hawkish-leaning voting roster, lingering inflation risks, and heightened sensitivity about its independence makes the case for rapid cutting difficult. Powell’s term as chair ends in May, making 2026 a two-Fed year, with Powell through the spring and then a successor with their own tolerance for political pressure.
What’s
Next: The Fed’s latest projections point to just one quarter-percentage-point cut in 2026, a median that reflects the view that growth will hold near trend, unemployment will rise modestly to around 4.4%, and inflation will continue to run higher than target. That signals it sees limited room to ease.
—Nicole Goodkind
Bank Earnings Expectations Are Rising Despite Loan Worries
Banks face rising expectations for their fourth-quarter financial reports this week. Not only is the broader market’s rally benefiting banks’ wealth- and asset-management businesses, trends still point to solid
consumer spending and credit quality. But a proposal by President Trump could crimp credit card operations.
- JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup all report this week, as do Wall Street giants Goldman Sachs and Morgan Stanley. Deregulation efforts by the Trump administration are also raising growth
expectations for large and small banks.
- Even as concerns about credit quality and lending to nonbank financial firms spread in late 2025, banks’ bottom lines should still show improvement. Analysts expect profits to have risen across the group, with the exception of Goldman, which is forecast to report lower per-share earnings from a year ago.
- Trump has called for credit card companies to cap the interest rates they charge customers at 10%, starting on Jan. 20, but his declaration was
short of details. The proposed rate would be lower than the average 19.65% rate, or store credit-card’s average 30.14% rate, according to Bankrate.
- Capping interest rates would be bad for card issuers American Express and JPMorgan Chase, along with Capital One Financial, which acquired Discover Financial Services in summer 2025. Card lenders made a record $130 billion in credit-card interest and fees in 2022, according to Consumer Financial Protection Bureau estimates.
What’s Next: Raymond James’ Washington policy analyst Ed Mills says Trump doesn’t unilaterally have the authority to lower card rates, which would need congressional action. The firm’s payments analyst Madison Suhr sees potential risk to networks
