Analyst reveals what Trump’s probe into Powell is really about, and it’s way worse than people think

U.S. stock futures dropped on Monday after news broke that the Department of Justice opened an investigation into Federal Reserve Chair Jerome Powell. The probe centers around a $2.5 billion renovation project at the Fed’s headquarters. This development has raised serious concerns about the central bank’s independence from President Donald Trump’s administration.

Powell responded to the investigation in a video statement posted on the Fed’s X account on Sunday. He said the probe 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.” Trump has previously criticized Powell for being too slow to cut interest rates, which continue to burden consumers, especially those trying to access housing.

The investigation has sent shockwaves through financial markets. According to CNBC, futures on the S&P 500, Dow Jones Industrial Average, and Nasdaq all moved lower on Monday morning. Investors are now questioning what this means for the Federal Reserve’s ability to operate independently from political pressure.

The move threatens central bank independence and investor confidence

Steve Englander, head of global G10 FX research at Standard Chartered, described the probe as Trump threatening Powell with “the Maduro option.” This refers to Venezuelan President Nicolás Maduro, who was seized by the U.S. military last weekend. 

The aggressive approach mirrors Trump’s recent international confrontations, including his clash with London’s mayor. Englander suggested Trump is trying to intimidate Powell into either retiring or being removed from his position.

Julien Lafargue, chief market strategist at Barclays Private Bank, called the timing of the probe “surprising.” Powell’s chairmanship is set to end in May, when a new Fed chair will be announced. The rushed nature of the investigation has raised eyebrows among financial experts.

The situation is creating pressure on U.S. assets. Lafargue told CNBC that the probe “will bring forth that sentiment that investors need to diversify away from U.S. assets.” He expects this could create pressure on the long end of the yield curve over time. Trump’s actions on Venezuela have also complicated diplomatic efforts, as seen in his upcoming meeting with opposition leader.

Nabil Milali, portfolio manager at Edmond de Rothschild Asset Management, said Trump’s strategy is “paradoxically counterproductive.” By questioning the Fed’s independence, Trump is actually fueling upward pressure on interest rates, particularly at the long end of the curve. This works against his stated goal of getting rates lower.

The investigation raises concerns about who will replace Powell. Milali warned that Powell’s successor “will have little credibility in the eyes of investors” and may end up following President Trump’s directives rather than making independent decisions. This could have lasting effects on how global investors view the Federal Reserve and U.S. financial markets.