Analysis of the Market Impact of the Criminal Investigation into Fed Chair Jerome Powell

Based on the latest market data and news reports, I provide the following comprehensive analysis:

Federal prosecutors in the U.S. have launched a criminal investigation into Federal Reserve Chair Jerome Powell, focusing on the $250 million renovation project for the Fed’s headquarters in Washington, D.C.[1][2]. The core of the investigation is whether Powell truthfully stated the project’s scope and costs in his testimony to the Senate Banking Committee in June 2025. Powell has strongly refuted the investigation, calling it an “excuse” for the Trump administration to pressure the Fed to cut interest rates, and emphasizing that “the threat of criminal charges stems from the Fed setting interest rates based on what it judges to be in the best interest of the public, not catering to the president’s preferences”[3].

The market reacted swiftly and negatively to this news. The U.S. Dollar Index (DXY) fell 0.3% immediately after the news was released, closing at 98.899, ending a five-day winning streak[4]. From a technical analysis perspective, the U.S. Dollar Index had just hit a one-month high before the news broke, and this decline reflects investors’ concerns about the following factors:

1. Risk of Impaired Fed Independence
   : The prosecutor’s office is led by newly appointed U.S. Attorney Jeanine Pirro, who was appointed by Trump, which reinforces market expectations of political interference in central bank independence[3]
2. Policy Uncertainty Premium
   : Investors have begun pricing in the risk that the Fed may deviate from its statutory duties under political pressure
3. Concerns About Capital Outflows
   : If the Fed’s independence is called into question, it could weaken global investors’ confidence in U.S. dollar-denominated assets

Ray Attrill, Head of FX Strategy at National Australia Bank in Sydney, stated: “Powell has clearly grown tired of standing by and is taking an aggressive stance. An open conflict between the Fed and the U.S. government — if Powell’s remarks are taken at face value — is clearly not a good omen for the U.S. dollar”[4].

The gold market showed a strong safe-haven reaction to this event. Spot gold prices surged to a record high of $4,563.61 per ounce after the news was released[4]. Our data analysis shows that gold closed at approximately $4,475 on January 6, 2026, and reached $4,586.20 on the first trading day after the investigation news (January 12), marking a significant single-day gain[0].

This trend indicates:

• Investors are flocking to safe-haven assets in large numbers
• Concerns about the stability of the U.S. financial system are rising
• Gold’s status as the ultimate safe-haven asset has been reinforced

Market analysts generally believe that this event will profoundly impact investors’ expectations for the Fed’s monetary policy:

• Charu Chanana, Chief Investment Strategist at Saxo Bank, stated: “The criminal investigation into the current Fed chair is forcing investors to price in an institutional risk premium, as perceptions of Fed independence are nearly as important as the next interest rate decision”[5]
• Kyle Rodda, Senior Market Analyst at Capital.com, commented: “This is a meaningful move against the U.S. dollar and a covert attempt by the government to coerce the Fed. It poses a threat to Fed independence and is negative for the market”[5]

• Jeremy Kress, Associate Professor at the University of Michigan’s Ross School of Business, noted: “This creates significant uncertainty about whether Powell will resign from the board at the end of his term. While there is no precedent, he is not obligated to do so”[5]
• The market is re-evaluating the risk premium for the January 2026 FOMC meeting and subsequent policy paths

Based on current market data and analysts’ views, the risk premium for U.S. assets is undergoing significant repricing:

• Although major stock indices showed some resilience in the initial stage of the event (the S&P 500 posted a weekly gain of 0.56%), the futures market indicates that volatility is building[0]
• The VIX Volatility Index remained at a medium-low level of around 15 before the news was released, but uncertainty is rising

• U.S. Treasury futures rose after the news was released, reflecting increased demand for safe-haven assets[4]
• Market pricing shows that investors expect adjustments to the long-term interest rate risk premium

• The euro has appreciated against the U.S. dollar
• The yen has become a focus of the market, as Japan may seize the opportunity to hold an early general election in February[4]

• The investigation gradually cools down, without impacting the Fed’s core policy stance
• The U.S. dollar gradually stabilizes but faces structural pressure
• Gold fluctuates at high levels, with safe-haven demand remaining sustained

• The investigation is proven to lack substantive evidence, and Powell’s reputation instead rises
• The Fed’s independence is repriced by the market with a premium
• The U.S. dollar regains strength, and risk assets rebound

• The investigation escalates, leading to Powell’s early resignation or removal from office
• The Fed’s independence is severely impaired, triggering a systemic confidence crisis
• The U.S. dollar depreciates sharply, and global capital is reallocated
• Gold breaks through the psychological threshold of $5,000 per ounce

1. For the U.S. Dollar
   : In the short term, it tends to decline moderately, but the U.S. dollar’s status as a global reserve currency remains resilient. It is recommended to monitor U.S. CPI data (released on January 12) and FOMC meeting minutes to judge the policy path[4]
2. For Gold
   : Safe-haven demand and technical breakthroughs indicate that upside potential has opened up, but investors need to be wary of pullback risks after overheated sentiment
3. For U.S. Stocks
   : It is recommended to focus on volatility management, as current market pricing has not fully reflected the potential risk of policy uncertainty
4. Risk Management
   : Investors should closely follow subsequent legal developments, Powell’s public statements, and the Trump administration’s responses. Any major escalation could trigger sharp market volatility

[1] Fox Business - “Fed’s Powell under criminal investigation over HQ renovation” (https://www.foxbusiness.com/politics/federal-reserve-chair-powell-under-criminal-investigation-over-hq-renovation-report)
[2] CNN - “Federal prosecutors open criminal investigation into the Fed and Jerome Powell” (https://www.cnn.com/2026/01/11/business/federal-prosecutors-criminal-investigation-federal-reserve-chair-jerome-powell)
[3] CNBC - “Fed Chair Powell under criminal probe by federal prosecutors” (https://www.cnbc.com/2026/01/12/fed-jerome-powell-criminal-probe-nyt.html)
[4] Reuters - “Dollar reels on criminal probe into Fed chair Powell” (https://www.reuters.com/world/asia-pacific/dollar-reels-criminal-probe-into-fed-chair-powell-2026-01-12/)
[5] Reuters - “Instant View: Investors react as Trump-Fed feud escalates” (https://www.reuters.com/business/view-investors-react-trump-fed-feud-escalates-2026-01-12/)
[0] Jinling API Market Data