- JPMorgan’s trading desk turned cautious on U.S. stocks after DOJ grand jury subpoenas to the Fed raised the prospect of criminal action tied to Jerome Powell’s testimony on a $2.5B renovation.
- Markets moved to risk-off, with S&P 500 futures down about 0.6%, the dollar weaker, gold at record highs, and volatility higher.
- Investors fear the probe could undermine Fed independence, distort rate-setting, and lift policy risk premia across equities, bonds, and FX.
- Key uncertainties include the probe’s legal trajectory and whether it affects Powell’s position and the Fed’s policy path into 2026.
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On January 11–12, 2026, the U.S. Department of Justice served grand jury subpoenas to the Federal Reserve, threatening criminal indictment of Chair Jerome Powell over his June 2025 testimony regarding cost overruns tied to the $2.5 billion renovation of Fed headquarters buildings. Powell condemned the move as politically motivated, a pretext to pressure the Fed into compromising its independence in interest-rate policymaking.
JPMorgan’s trading desk, led by head of Global Market Intelligence Andrew Tyler, reacted by adopting a cautious near-term stance on U.S. equities. Though macroeconomic fundamentals still suggest some tactical upside, the overhang from the Fed independence issue is seen by JPMorgan as likely to weigh on equity performance in the immediate term.
The market’s reaction across asset classes was swift and broad. Equity futures dropped ~0.6 %. Safe-haven assets such as gold surged to record highs (~USD 4,600/oz) as investors rotated out of riskier positions. The U.S. dollar weakened broadly, while Treasury yields saw upward pressure in longer maturities, reflecting inflation or risk‐premium expectations.
The situation raises strategic risks for investors and institutions. First, central bank credibility is at stake: if rate decisions are perceived as politically driven, inflation expectations and long-term rates could rise. Second, Fed leadership transitions (Powell’s term ends in May 2026) may be subject to greater political interference, affecting continuity. Third, financial markets may increasingly price in institutional risk, leading to volatility and lower valuations for sectors sensitive to policy uncertainty (financials, rates-driven industries). Finally, international investors’ trust in U.S. policy frameworks may be strained, affecting dollar strength and capital flows.
Open questions remain: Will legal proceedings substantiate charges or stop short? How will courts handle challenges to proposed dismissals/appointments (e.g., Fed Governor Lisa Cook case)? Will the Fed accelerate or delay rate cuts in response to political pressure, or reaffirm data-based policymaking? And how far will erosion of norms around central bank independence feed into inflation expectations and risk premia?
Supporting Notes
- DOJ subpoenas threatened indictment of Chair Jerome Powell over his June Senate testimony about the Fed’s $2.5 billion renovation of its Washington, D.C. headquarters, which he criticizes as a pretext to influence interest-rate decisions.
- Powell asserts that decision-making should rest on economic evidence, not under political pressure.
- JPMorgan, via Andrew Tyler, said: “While macro and corporate fundamentals support a tactically bullish stance the risk to Fed independence creates an overhang and thus we are cautious in the very near-term.”
- S&P 500 futures dropped ~0.6 %, U.S. dollar weakened, gold reached record highs over USD 4,600/oz.
- Goldman Sachs economist Jan Hatzius commented that the investigation has “reinforced concerns that Fed independence is going to be under the gun,” though he expects Powell to continue decision-making based on data.
- Treasury markets reflected elevated yield in long maturities; dollar’s weakness and safe-haven demand signalled investor concern over policy framework risks.