Powell Under Investigation: Is the Fed Chair Position at Risk? Is a Market Storm Coming?

The political storm in Washington is impacting the core of the global financial markets in an unexpected way. A criminal investigation targeting current Federal Reserve Chair Jerome Powell has thrown the already nearing completion succession process into complete chaos.

Market analysts point out that this investigation has created new obstacles on Capitol Hill and sparked a sharp question: will future nominees still be able to maintain the independence of the central bank? This tension has always existed, but it is now impossible to ignore.

Former President Trump has explicitly stated that he values loyalty in his appointees. However, as Powell has said, this Department of Justice investigation is essentially a pressure tactic to force the Fed to cut rates. This means that loyalty, in the current atmosphere, could instead become a negative asset for nominees.

The strong backlash from Congress may force final nominees to walk a tightrope during confirmation hearings. They cannot afford to challenge the President’s efforts to scrutinize the Fed and anger the White House, nor can they appear too close to the President, which could raise concerns among legislators or markets about their independence.

Key resistance has already emerged within the Senate Republican ranks. North Carolina Senator Thillis and Alaska Senator Murkowski have made it clear that they will not support any nominee until the investigation concludes. Thillis even used a vivid metaphor: under the current circumstances, even if my mother runs for this position, I wouldn’t consider it.

His stance is crucial. As a member of the Senate Banking Committee, with Democratic support, he has the power to block the nomination. Thillis hinted that candidates perceived as having closer ties to Trump will face tougher questions regarding independence.

In contrast, Federal Reserve Board member Waller, who has no close ties to the President, might become a safe card to ease concerns. The core of this contest remains the so-called “Two Kevins” rivalry: former Fed Governor Kevin Wash and White House National Economic Council Director Kevin Hasset.

Hasset was once a strong contender for the position, but his close relationship with the President could now be a liability. This week, he attempted to defend the investigation, calling it legitimate government oversight, which quickly drew criticism. Some argue that defending political attacks in this way is inconsistent with the image of someone aiming to lead an independent central bank.

Meanwhile, Wash, who is not currently serving in the White House, does not need to defend government controversies daily in the media. Some observers believe that as the investigation escalates, Hasset’s standing in the Senate could suffer, giving Wash a relative advantage.

Regarding future trends, insiders reveal that the leading candidate’s prospects depend to some extent on the specific circumstances of the day. While Trump recently hinted he might prefer Hasset to stay in his current role, he also expressed admiration for Wash’s acuity and image.

There is also a very pragmatic consideration. The Trump administration has long hoped that Powell would completely leave the Fed after stepping down as Chair. Powell’s term as Chair ends in May, but his term as a Board member runs until 2028.

Analysts believe that if Trump chooses Waller, a colleague respected by Powell, as his successor, Powell is more likely to voluntarily resign from the Board. This would free up an additional Board seat for Trump, allowing him to fill two vacancies this year.

However, if the investigation escalates to criminal charges, the situation could become even more uncontrollable. Kudlow, who served as Director of the National Economic Council during Trump’s first term, warned that unless the investigation into Powell is dropped, the President will be unable to confirm his Fed Chair candidate.

Former Fed Chair and former Treasury Secretary Yellen bluntly pointed out: “Trump has made things very difficult. He says he refuses to appoint anyone who disagrees with him or does not act according to his wishes. Starting from this point, it already undermines the credibility of the candidate.”

The impact of this event far exceeds mere personnel appointments. It is a profound struggle over the independence of the Fed and the boundaries of presidential power. Washington D.C. federal prosecutors claim the investigation aims to determine whether Powell lied to Congress, while Powell insists it is an excuse to force rate cuts.

In this game, whoever ultimately gets the nomination will carry a heavy political burden. For markets, this uncertainty is the greatest risk. The investigation, originally intended to exert pressure, may instead trap Trump himself.

He is forced to bow to independence when choosing a successor or face the risk of the nomination being indefinitely delayed by Congress during the election year. This political deadlock creates uncertainty, which markets despise. It could increase volatility and affect investor pricing of risk assets like $BTC, $ETH, and others.

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