A Line Crossed? Fed’s Powell Faces DOJ Probe Over Interest Rates; Bitcoin and Gold React

• The DOJ subpoenas against Jerome Powell have raised concerns about the Federal Reserve’s independence.
• Bitcoin and gold are holding their ground as investors move away from the US dollar and traditional stocks.
• The conflict stems from a $2.5 billion renovation project and pressure to lower interest rates.

The relationship between the White House and the Federal Reserve hit a breaking point this week. 

Interestingly, this tension has affected only a portion of the financial markets.

On Sunday, January 11, Fed Chair Jerome Powell revealed that the Department of Justice served the bank with grand jury subpoenas. The DOJ even reportedly threatened Powell with a personal criminal indictment.

This news moved beyond legal talk and became an attack on how America manages its money.

What Caused This Investigation?

The official reason for the investigation involves a $2.5 billion renovation of the Fed headquarters in Washington.

Notably, this project started with an estimated $1.9 billion in 2023. 

However, costs jumped quickly to the current $2.5 billion price tag. Prosecutors are now looking at Powell’s June testimony before the Senate Banking Committee. They claim that he misled 

Congress about “extravagant” features like VIP dining rooms and rooftop gardens.

So far, Powell has denied these claims in a blunt statement and argued that the threat is not about buildings or testimony. 

Instead, he believes the criminal charges are the result of the Fed setting interest rates based on public service and has refused to simply follow the President’s preferences.

This public stand gave investors a reason to pivot, and they are now seeing assets like crypto as a safer bet than bank notes.

Markets React to Federal Reserve Pressure

Traditional markets did not take the news well. Investors became worried about a central bank that might lose its independence, and this has caused a “sell-America” mood across different asset classes.

The S&P 500 futures dropped by 0.6% just hours after the announcement, while the US dollar index weakened against the Euro and the Yen.

Meanwhile, gold rose past $4,600 per ounce and set a new record high for the metal. 

Digital assets behaved similarly, with Bitcoin rising 1.4% to reach $91,932, before returning to the $90,000 zone. Ether also climbed to $3,149, and crypto investors appear to be seeing a “sovereign risk” in the current system. 

In all, if the Fed loses its neutral status, the value of math-based assets like Bitcoin grows.

Why These Events Matter Now

The legal fight is part of a year-long feud. Since returning to the Oval Office in January of last year, President Trump has asked for deeper interest rate cuts. 

He wanted to lower housing costs and government debt interest, but the Fed stayed cautious instead. They cut rates by only 0.25% at each of the last three meetings, and this left the target range at 3.5% to 3.75%.

The Trump administration is clearly unhappy with this slow pace, with the president saying publicly that Powell was “not very good” at managing the Fed. He also criticised the Chair’s ability to handle the construction projects in question. 

This pressure creates a risky environment for the dollar. If people see the Fed as a puppet, they might stop trusting US debt, and this is exactly why Bitcoin exists, because investors want assets that politicians cannot touch.

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