Daily Market Update: DOJ Opens Investigation Into Fed Chair Powell as Stock Futures Drop

TLDR

• Federal Reserve Chair Jerome Powell faces a DOJ criminal investigation into a $2.5 billion Fed headquarters renovation, which he calls political pressure
• Prediction markets show only 8% chance Powell leaves by March and 19% chance by May on Polymarket and Kalshi platforms
• Stock futures dropped Sunday night with Dow futures down 0.5%, S&P 500 futures down 0.6%, and Nasdaq futures down 0.9%
• Bitcoin held near $91,400 and Ethereum near $3,125 while gold climbed above $4,580 per ounce
• Kevin Warsh leads prediction markets with 43% probability to become next Fed chair

Markets opened the week with caution after Federal Reserve Chair Jerome Powell revealed the Department of Justice had served the central bank with grand jury subpoenas. The investigation centers on the Fed’s $2.5 billion headquarters renovation project.

Powell released an unusual video statement late Sunday. He claimed the probe was a direct attack on the Fed’s independence and its interest rate decisions that “serve the public” rather than following presidential preferences.

Stock futures dropped in response to the news. Dow Jones Industrial Average futures fell 0.5% while S&P 500 futures slipped 0.6%. Nasdaq 100 futures declined 0.9%.

The market reaction comes after a strong finish to the previous week. Both the S&P 500 and Dow closed Friday at record highs. The S&P 500 gained more than 1% for the week while the Dow and Nasdaq posted stronger gains of 2.3% and 1.9% respectively.

Prediction markets suggest traders remain skeptical about Powell’s early removal. On Polymarket, traders priced just an 8% chance Powell would step down as Fed chair by March 31. That probability barely changed despite the investigation news.

Regulated prediction market Kalshi showed similar sentiment. Contracts pricing whether Powell will leave before May 2026 jumped to around 19%. Markets still see his removal as a low-probability outcome.

Crypto and Commodity Markets Hold Steady

Bitcoin traded near $91,400 with minimal movement. Ethereum held above $3,125 after pulling back from its 100-day moving average. The stable crypto prices suggest traders are not repositioning for immediate shifts in monetary policy.

Gold markets moved more decisively than digital assets. The precious metal climbed above $4,580 per ounce. Silver gained more than 4.5%.

The metals market action could signal traders preparing for potential changes in Fed policy. Some analysts view it as a split from prediction markets as investors position for looser monetary policy under a new Fed chair.

Next Fed Chair Predictions

Polymarket traders are betting on Kevin Warsh as the next Fed chair. He holds a 43% probability according to the prediction market contract.

Warsh has argued in Wall Street Journal op-eds that inflation stems from excessive government spending and an overextended central bank. He calls for a smaller, less political Fed with a reduced balance sheet.

A separate Polymarket contract assigns a 67% probability that Powell leaves the Fed Board by late May. This suggests his influence may continue even after his term as chair ends.

Investors now turn attention to upcoming economic data. The consumer inflation report arrives Tuesday. Several major banks including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley will report earnings this week.

CME FedWatch shows a 95% probability that interest rates will remain unchanged at the next Fed meeting. Friday’s December jobs report showed continued cooling in the labor market without signaling a sharp economic slowdown.

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