Bessent warns: Fed investigation triggers market turbulence, will Powell refuse to relinquish power as a result?

The Federal Reserve office building renovation project budget has increased from an initial $1.9 billion to nearly $2.5 billion. This was originally a routine government project overrun, but it has now become the latest trigger in the intense conflict between U.S. President Trump and Federal Reserve Chair Powell. On January 11, 2026, Powell confirmed that federal prosecutors had launched a criminal investigation against him, focusing on whether he made false statements about the project’s scope during his testimony to Congress last June.

The investigation is led by Pilar, a long-time ally of Trump and head of the District of Columbia U.S. Attorney’s Office, which was approved last November. The chain reaction of this investigation is being transmitted through complex mechanisms to the global financial markets.

Event Sparks

Last Friday, Powell received a grand jury subpoena from the U.S. Department of Justice, threatening criminal charges related to his testimony before the Senate Banking Committee last June. In a video statement, he directly responded that these charges are merely “an excuse,” and the real reason for his investigation is that the Federal Reserve “did not follow the President’s wishes” in setting interest rates.

This unprecedented investigation not only signifies an escalation of the long-standing conflict between Trump and Powell but also sends a clear warning signal to Powell and his potential successors.

Bessent’s Warning

Treasury Secretary Bessent intervened urgently, telling Trump that the investigation has “made a mess” and could negatively impact financial markets. His warning is not unfounded. As a former hedge fund manager, Bessent is highly sensitive to market volatility. More importantly, he currently also serves as Acting Commissioner of the IRS, with a clear understanding of the legal and financial chain reactions that may be triggered by the investigation.

It is noteworthy that prior to the investigation’s initiation, neither the Treasury Department, the White House senior officials, nor the main departments of the Justice Department were notified, making Bessent’s warning even more urgent.

Behind the Investigation

The core of this investigation involves the renovation of two main Federal Reserve office buildings. The project began in 2022 and is expected to be completed by 2027, with costs significantly increased due to rising building material prices. Trump has repeatedly publicly criticized the project for “cost overruns” and accused Powell of being “incompetent.” Powell, in his Congressional testimony last June, argued that the renovations were to meet “safety and modernization” requirements, denying allegations of luxury upgrades.

Analysts believe that this investigation is partly “Trump’s revenge” and also aims to pressure Powell to leave the Federal Reserve so Trump can continue to install his own candidates.

Immediate Market Reaction

U.S. stocks experienced significant volatility on January 12. The Dow Jones Industrial Average opened nearly 500 points lower but ultimately closed up slightly by 0.17% at 49,590.2 points. This fluctuation reflects market concerns over the independence of the Federal Reserve. Investors worry that if monetary policy is politically coerced, the U.S. will severely lose its ability to control inflation.

Safe-haven assets gained favor. Spot gold hit a historic high, while the dollar weakened relatively, reflecting global capital’s shaken confidence in U.S. assets.

Political Game and Power Transition

Senate Banking Committee member and Republican Senator Thillis has explicitly stated that he will oppose any Federal Reserve nominees proposed by Trump until the current chaos is resolved. This stance is crucial because Powell’s term as Chair will end in May this year. Trump recently revealed that he has identified a successor for Powell.

Former Fed Chairs Bernanke, Greenspan, and Yellen jointly issued a statement criticizing the investigation as an “unprecedented attempt to weaken the independence of the Federal Reserve through prosecutorial attacks.”

Crypto Market’s Safe-Haven Logic

When traditional financial markets face uncertainty, cryptocurrencies are often viewed as safe-haven assets. Below are the latest price performances of major cryptocurrencies on Gate and an analysis of influencing factors:

Market analysts suggest that the crisis of Fed independence could further accelerate the global shift of funds from traditional finance to decentralized finance ecosystems.

Recently, the Trump administration has also taken a series of administrative measures, including instructing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities, and calling for a cap of 10% on credit card interest rates. These moves are seen as attempts to bypass the Fed and directly intervene in interest rate levels.

Diversified Path Allocation Strategy

In the current market environment, traditional asset allocation strategies face challenges. As the global economy enters a “critical chaos” phase, correlations among assets are rising, and asset prices respond more collectively to policy changes.

Diversified pathways are gradually becoming the new direction for allocation. This means investors need to position themselves across different risk factors, policy shifts, and market narratives, enabling portfolios to remain stable across multiple potential market trajectories.

The weakening of Fed independence may further strengthen the value of cryptocurrencies as an alternative asset class. Compared to simply expanding asset ranges, pathway diversification focuses more on the possible trajectories of price movements.

Trump insists he is “unaware” of the investigation but has also criticized Powell’s performance at the Fed and his ability to oversee the building projects. Powell’s stance is clear: “I will continue to fulfill my responsibilities as assigned by the Senate.” Bessent’s warning has become a reality. Capital is seeking new safe havens worldwide; whether it’s gold at historic highs or surging crypto trading volumes, they tell the same story. Whether Powell will refuse to relinquish power depends on whether he can withstand unprecedented pressure and whether trust in the Fed’s independence is beyond repair. But regardless of the outcome, the global financial landscape has quietly shifted in this event.