- DOJ grand jury subpoenas tied to Jerome Powell’s testimony on the Fed’s $2.5B renovation reignited fears of political interference in monetary policy.
- Markets reacted with a weaker dollar, higher long-dated Treasury yields, and surging gold and silver, echoing a renewed “Sell America” trade.
- Former Fed chairs and Treasury officials warned the probe threatens Fed independence, a key anchor for price stability and U.S. credibility.
- Strategists caution the episode could embed a lasting institutional risk premium in Treasuries, lifting inflation expectations and undermining global confidence in U.S. assets.
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Investors quickly translated the threat to institutional norms into market moves: bond yields rose sharply (10-year yields spiking to ~4.20 %), the dollar weakened across major pairs, and gold and silver surged to record highs — reflecting a demand for safe-haven assets and concern over inflation and policy risk. This blend of rising yields and dwindling confidence mirrors earlier episodes like the “Sell America” trade from April 2025, suggesting a renewed flight from U.S. asset risk premised on monetary policy uncertainty.
Equities exhibited mixed behavior. While financials and credit-dependent sectors were hit (due to fear of regulatory overreach, risk of rate caps, etc.), broader indices saw a muted dip and recovered marginally by the end of the trading day, indicating resilient underlying demand. However, the volatility itself—especially in Treasuries—introduces an elevated term premium and a layering of political risk into what is typically assumed to be “risk-free” U.S. sovereign debt.
Strategically, this episode may shift investor behavior longer-term in several ways: risk-hiding is likely to increase, allocation to gold/silver or non-U.S. assets may rise, and political oversight of central banking may become a priced risk. Policymakers, including Congressional Republicans and Treasury Secretary Scott Bessent, are under pressure to provide “off-ramps” to restore confidence. The Fed’s ability to maintain its mission (stable prices, maximum employment, etc.) depends heavily on perceptions of independence — once credibility is questioned, re-establishment is far more difficult.
Open questions remain: Will the DOJ push toward criminal charges, or does this remain a leverage tactic? Can Powell and the current Fed board effectively reassure markets about future monetary policy independence? How resilient are foreign holders of U.S. debt to persistent political risk? And as inflationary expectations rise, can the Fed maintain policy discipline in the face of executive demands for accommodative action? These will be key tests of the institutional structure and market expectations through 2026.
Supporting Notes
- On January 12, 2026, Powell disclosed that the Department of Justice had served the Fed with grand jury subpoenas related to his June 2025 testimony about a $2.5 billion renovation of its headquarters.
- Powell characterized the probe and focus on renovation costs as “pretexts … the threat of criminal charges is a consequence” of resisting political pressure to cut interest rates.
- U.S. Treasury yields rose sharply: the 10-year yield approached ~4.20 %, while the 30-year yield jumped above ~4.80 %.
- The U.S. dollar weakened approximately 0.3 % across the board and fell to near its weakest levels since early December relative to major currencies.
- Gold surged past $4,600 per ounce, and silver exceeded $86 per ounce, setting new record highs.
- Stocks opened lower (particularly financial and credit-sensitive sectors) but closed marginally higher in most indices, indicating mixed investor sentiment.
- Former Fed Chairs Bernanke, Yellen, Greenspan, alongside former Treasury Secretaries, issued a joint statement highlighting the importance of both actual and perceived Fed independence for meeting its dual legislative mandates.
- Analysts at Evercore ISI, ING, and others warned that this incident could raise long-term risks to inflation expectations and distort the Fed’s ability to set policy free of executive influence.