Misdirection

President Donald Trump has escalated his longstanding criticism of Federal Reserve Chair Jerome Powell and the Fed through the Department of Justice (DOJ), primarily by initiating a criminal investigation into Powell’s congressional testimony. This action is widely viewed across sources as an attempt to exert political pressure on the central bank to lower interest rates, amid Trump’s repeated public threats to fire Powell or sue him for “gross incompetence.” The investigation focuses on whether Powell lied to Congress during his June 2025 testimony before the Senate Banking Committee about the scope and costs of the Fed’s $2.5 billion headquarters renovation project in Washington, D.C.  On Friday January 9th, the DOJ served the Federal Reserve with grand jury subpoenas, explicitly threatening criminal indictment against Powell. Powell responded in a video statement yesterday (Sunday evening), calling the probe “unprecedented” and a “pretext” to undermine the Fed’s independence, emphasizing that it stems from the bank’s refusal to align monetary policy with Trump’s preferences (see below). The ongoing investigation has drawn bipartisan criticism for potentially compromising the Fed’s autonomy, with figures like Sen. Thom Tillis (R-NC) vowing to block Trump’s Fed nominees until resolved. Aside from the power grab agenda, it looks like the Trump administration is trying very hard for us to look at the fireworks (Venezuela, Iran, Greenland, the Fed, etc) perhaps with the ultimate goal of distracting us from other issues (SCOTUS on tariffs? Epstein list? failure of negotiations with China?). It used to be enough with one war or one invasion to work as fog curtain, now we need a three stage circus. And it looks like this exercise of misdirection is working, since markets are down 70 bps pre-market and the bond market is quiet. Still close to all time highs.

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