Bringing Charges Against the Fed: What We Do (and Don’t) Know

Economic

Summary:

President Trump has sharply escalated his clash with the Federal Reserve, with his Justice Department probing Chair Jerome Powell over a costly renovation project—a move critics see as an attempt to pressure the Fed on interest rates and undermine its independence, raising concerns about the politicization of U.S. monetary policy.

President Donald Trump has dramatically escalated his confrontation with the Federal Reserve, his Justice Department investigating and threatening a criminal indictment of the independent central bank and serving it with subpoenas.

The dispute is ostensibly about Fed Chair Jerome Powell’s testimony to Congress in June over the cost of a massive renovation of Fed buildings. But in a statement Sunday, Powell, abandoning his previous attempt to ignore Trump’s relentless criticism, called the administration’s threat of criminal charges “pretexts’’ in the president’s campaign to seize control of U.S. interest rate policy from the Fed’s technocrats.

Trump has repeatedly criticized Powell and the Fed for not moving faster to cut rates. Economists warn that a politicized Fed that caves in to the president’s demands will damage its credibility as an inflation fighter and likely lead investors to demand higher rates before investing in U.S. Treasurys.

Here’s what to know about the dispute:

The threat of charges arises from a $2.5 billion Fed renovation project

The $2.5 billion renovation of two Fed buildings in Washington dates back to Trump’s first term and attracted little attention for years. But over the summer, the administration began to complain about cost overruns in the project — criticisms that coincided with Trump’s increasing pressure on the Fed to slash interest rates to stimulate the economy.

Taxpayers are not footing the bill for the Fed renovations directly. Unlike other government agencies, which receive taxpayer money appropriated by Congress, the central bank is self-financed, drawing on interest from its massive holdings of Treasury debt.

The Fed says its headquarters, known as the Marriner S. Eccles building, desperately needed an upgrade because its electrical, plumbing and HVAC systems, among others, are nearly obsolete; some date back to the building’s construction in the 1930s.

The Fed is removing asbestos, lead and other hazardous elements from the building and installing modern electrical and communications systems. The H-shaped building, named after a Fed chair from the 1930s and ’40s, is located near some of Washington’s highest-profile monuments. The central bank is also renovating a building next door that it acquired in 2018.

The Fed has said: “The construction project identified key architectural features to preserve the historic integrity of the buildings, such as stonework, including marble, façades, meeting rooms, and other spaces. Historic preservation work in the Eccles Building also includes elevators that are original to the building, and historic conference rooms.″

The costs of the Fed overhaul have ballooned

Originally budgeted at about $1.9 billion, the project’s costs have swelled by $600 million.

The Fed cites many reasons for the greater expense. Construction costs, including for materials and labor, rose sharply during the inflation spike of 2021 and 2022. The project required more asbestos removal than expected. And Washington’s local restrictions on building heights forced it to build underground, which is pricier.

Because of the rising costs, the Fed’s board canceled planned renovations of a third building in 2024.

The Fed says the renovations will reduce costs “over time” because it will be able to pack its 3,000 Washington-based employees into fewer buildings and pay less rent.

At a Senate Banking Committee hearing in June, Chairman Tim Scott, a South Carolina Republican, claimed that renovation included “rooftop terraces, custom elevators that open into VIP dining rooms, white marble finishes, and even a private art collection.” In his testimony, Powell disputed those details, saying “there’s no new marble. ... there are no special elevators.”

In July, Trump visited the building site and, while standing next to Powell, overstated the cost of the renovation. Still, Trump downplayed concerns later that day, saying “they have to get it done ... Look, there’s always Monday morning quarterbacks. I don’t want to be that. I want to help them get it finished.”

When asked if the overruns amounted to a firing offense, Trump said, “I don’t want to put that in this category.”

But at a December 29 news conference, Trump said his administration would “probably” sue Powell for “gross incompetence” on the cost of renovations, calling it the “highest price of construction per square foot in the history of the world.”

The Supreme Court signaled last year that Trump can’t fire Powell simply over disagreements about interest rates. But he could do so legally “for cause,” such as misconduct or dereliction of duty.

The dispute seemed to have died down before flaring up again

The controversy over the renovations died down after the summer.

But Trump kept up his pressure on the Fed. In August, he said he was firing Fed governor Lisa Cook, an unprecedented step arising from allegations of mortgage fraud, which she has denied. Cook has sued to keep her job and courts have ruled she can remain in her seat while the case plays out. The Supreme Court will hear arguments in the case Jan. 21.

Trump has repeatedly used investigations — which might or might not lead to an actual indictment — to attack other political rivals, including New York Attorney General Letitia James and James Comey, the former FBI director.

Speaking briefly NBC News Sunday, Trump claimed that he knew nothing about the investigation into Powell. When asked if it is intended to pressure the Fed chair on rates, Trump said, “No. I wouldn’t even think of doing it that way.”

White House press secretary Karoline Leavitt told reporters that Trump did not direct his Justice Department to investigate Powell.

The subpoenas come at an unusual moment when Trump was teasing the likelihood of announcing his nominee this month to succeed Powell as the Fed chair. While Powell’s term as chair ends in May, he has a separate term as a Fed governor until January 2028.

Trump has been criticized for his own renovations

Trump has come under fire for his own decision to tear down the facade of the East Wing of the White House to put in a $250 million ballroom.

The 90,000-square-foot ballroom will dwarf the main White House itself: The Executive Mansion occupies just 55,000 square feet. Trump says the ballroom will accommodate 999 people.

Like the Fed’s project, Trump’s ballroom won’t cost taxpayers anything: It is being privately funded by “many generous Patriots, Great American Companies, and, yours truly,” Trump has said on social media.

The president argues that the White House needs a large entertaining space. He has complained about the capacity of the East Room, which can hold 200 people and is currently the largest space in the White House. He also objects to the practice of past presidents hosting state dinners and other events in tents on the South Lawn.

Source: AP

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Adam

Commodity

Oil briefly rose above $65 a barrel for the first time since November after the US escalated pressure on Iran, while tankers were attacked near a vital terminal for Kazakh crude on Russia’s Black Sea coast.

Brent (BZ=F) futures extended gains of more than 6% over the previous three sessions. President Donald Trump announced a 25% tariff on goods from countries “doing business” with Iran and has not ruled out military strikes on the Persian Gulf state, just days after a stunning move to take control of Venezuelan oil production.

Meanwhile, the biggest source of crude supply disruption has been at the Caspian Pipeline Consortium terminal that loads Kazakh oil into tankers, with a combination of bad weather, drone attacks and maintenance threatening exports. On Tuesday, two vessels were struck near the facility, underscoring fresh risks to supply, with loadings already revised down by almost half to around 900,000 barrels a day.

“Geopolitical risk is at an all-time high,” Jeff Currie, chief strategy office of energy pathways at Carlyle, said in a Bloomberg television interview. “That’s a recipe for a spike in prices now.”

Oil Hits $65 as Geopolitical Risks Swirl From Iran to Black Sea_1

The risk of a surge is also showing up in options markets where traders are demanding the biggest premiums for bullish contracts since Israel and the US launched airstrikes on Iran last year. A record volume of bullish Brent call options changed hands on Monday, in part led by large wagers on higher prices.

Oil has gained ground in the early new year period, following a run of five monthly losses spurred by expectations for a glut. The climb has come amid US intervention in Venezuela, with Washington’s capture of leader Nicolás Maduro, followed by the worsening wave of unrest in Iran. The rally caught an oil market that was steeped with bearish bets off guard.

While, authorities in Tehran have said they have now quelled the protests, the unrest appears to be persisting and an activist group warned that the civilian death toll could be in the thousands.

The possibility of a disruption to Iran’s daily exports, which account for just under 2% of global demand, has tempered some of the concerns over the global glut.

“Regime change in Iran could ultimately amplify the downtrend in crude markets as the strong supply picture still holds,” said Florence Schmit, an analyst at Rabobank. “But there are is a potential for another rally before that if the unrest - directly or indirectly - targets energy flows.”

Source: Bloomberg

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Winkelmann

Political

Economic

Police officers leave the "Le Constellation" bar, following a deadly fire during a New Year's Eve party, in the upscale ski resort of Crans-Montana in southwestern Switzerland, January 9, 2026. REUTERS/Umit Bektas/File Photo

· Lawyer seeks to include local authorities in investigation

· Will claim millions in compensation for injuries and deaths

· French owners under investigation, mayor admits safety check failures

Switzerland's criminal investigation into a fire in a bar in the ski town of Crans-Montana should be broadened to include local authorities, a lawyer acting for some of the victims said, adding he would seek millions in compensation.

The fire killed 40 people, most of them teenagers, and injured 116. Romain Jordan, who represents more than 20 burn victims from the New Year's blaze, said he would claim damages of up to several million for each injury and up to 100,000 Swiss francs ($125,390) for each death.

"For me, there is absolutely no doubt that the municipality must be put on the list of those responsible and it should be asked to give answers," Jordan said in an interview late on Monday, saying he expected total claims in the hundreds of millions of francs.

"What is certain is that we will request for (officials) to be heard (by prosecutors), to obtain the documents, for the full correspondence, to understand how so many errors, so many safeguards that are normally in place in a risk management system, could all fail."

The mayor's office for Crans-Montana did not immediately respond to a request for comment.

ANNUAL SAFETY CHECKS MISSED

Prosecutors believe sparkling candles set the soundproof foam on the basement ceiling of "Le Constellation" bar alight early on New Year's Day. Panicked crowds then fled up a narrow staircase to a narrow exit, which became a fatal choke point as the inferno spread, witnesses said.

The town's mayor said last week that the venue had missed multiple annual safety checks, and expressed regret.

For now, only the French owners are under investigation for crimes including suspected negligent homicide. The couple, Jacques and Jessica Moretti, say they are cooperating with the investigation and have voiced grief over the tragedy. The husband has been detained.

Jordan called it a "bad joke" that the upscale town sought to be a party in the case - a request that has not been granted. "That cynicism hurt the families."

Jordan's clients are Swiss, French and Italian and most were injured, with all but two of them in artificial comas or unresponsive in European hospitals.

"They (the families) feel like they are in a nightmare from which they will never wake up, and what they ask me for is answers about who is responsible," he said.

Under Swiss law, victims of a criminal act can seek emergency financial assistance, but Jordan said a state fund was needed to cover further expenses until a ruling.

"Ideally there should be direct compensation for victims - no double punishment."

($1 = 0.7975 Swiss francs)

Source: Reuters

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Stocks

Global shares rose on Tuesday and the dollar recovered some lost ground ahead of U.S. inflation data and major bank earnings, while oil prices gained as unrest in Iran fanned fears for supplies.

U.S. President Donald Trump's pledge on Monday to slap a 25% tariff rate on any country that does business with Iran, along with his attacks on Federal Reserve independence, added to market uncertainty, keeping investors cautious.

Europe's STOXX 600 (.STOXX) was up just 0.1%, while U.S. stock index futures , were mostly flat.

In Asia, Japan's Nikkei (.N225) returned from holiday with a jump of 3.3% to record highs, aided by a slide in the yen to historic lows and much talk of fiscal stimulus.

Prime Minister Sanae Takaichi plans to dissolve parliament to call an early election, Kyodo news agency reported, as she hopes to bolster her coalition's parliamentary majority, which would provide scope for more aggressive policies.

WALL OF WORRY

Even with multiple geopolitical flashpoints, such as Iran, Greenland and Venezuela, and concern about lofty valuations as equity benchmarks from London to Tokyo and Frankfurt hit record highs, investors appear content to push markets higher for now, a dynamic strategists call "climbing the wall of worry".

"The wall of worry has been built anew over the last week in so many different ways. And yet, (the market) is just climbing and climbing," IG chief market strategist Chris Beauchamp said.

"If people came into 2026 the same way they finished 2025, mainly they're looking for the pullback, they're looking for a reason for the market to correct. At the moment, it feels like they're just running the old hits of tariffs and interventions," he said.

A cornerstone of some of the current confidence is anticipated earnings growth of 8.3% in the fourth quarter, which would mark the 10th straight quarter of expansion, Beauchamp added.

"That's your fuel in the engine," he said.

Traders and investors are waiting for a report on U.S. consumer price inflation for December. Forecasts are for annual core inflation to nudge up to 2.7%.

Earnings season kicks off this week with results from the major banks including JPMorgan Chase (JPM.N), , Bank of New York Mellon (BK.N), Citigroup (C.N) and Bank of America (BAC.N) .

Earnings calls will no doubt include questions about banks' response to Trump's call for a one-year cap on credit card interest rates at 10% starting on January 20.

The banks have already warned such a step could result in millions of American households and small businesses losing access to credit, essentially a tightening in monetary policy.

GOLD SHINES THROUGH UNCERTAINTY

Three former Fed Chairs, Janet Yellen, Ben Bernanke and Alan Greenspan, signed a statement on Monday decrying the assault on the central bank's independence by the Trump administration. They warned that this is more typical in "emerging economies with weak institutions" and can have highly negative consequences for inflation.

Global central bank officials issued a coordinated statement of support for Fed Chair Jerome Powell on Tuesday after the Trump administration threatened him with a criminal indictment.

The dollar held relatively firm against a basket of currencies , having lost 0.25% overnight. The euro was flat at $1.1665 , while the pound rose 0.1% to $1.3477.

The yen came under heavy fire, falling to an all-time low against the euro and Swiss franc, which in turn helped boost the dollar by 0.5% on the day to 158.89 , sparking another round of verbal warnings from Japanese officials that can often precede intervention.

Gold, meanwhile, topped $4,600 an ounce, having hit a record high of $4,629.94 on Monday.

"Gold serves as a catch-all, and a default hedge of last resort for fear and uncertainty given its reputation as a safe haven and store of value, the fact that it is non-debasable, and is no one else's liability," said Christopher Louney, a gold strategist at RBC Capital Markets.

Oil prices reached seven-week highs on worries that Iran's exports could decline as the sanctioned OPEC member cracks down on anti-government demonstrations.

Brent gained 1.1% to trade at $64.63 a barrel, while U.S. crude rose 1.2% to $60.22.

Source: Reuters

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Warren Takunda

King Ten

Economic

The Japanese yen fell to its lowest level in 19 months against the dollar and a new 19-year low against the pound on talk of a snap election in Japan.

Moves were triggered by domestic news reports that Prime Minister Sanae Takaichi is eyeing a snap early election, judging that her popularity would bolster the fortunes of her Liberal Democratic Party and return its majority in the Diet.

Takaichi advocates a policy of government stimulus and low interest rates, which are a significant headwind to the value of the yen. The news sent dollar-yen to 158.89 and pound-yen to 214.29.

However, according to FX analyst Kit Juckes at Société Générale, the yen's latest impulse lower could offer an attractive entry point for buyers.

He explains that the latest drop makes positioning a great deal more attractive to potential buyers:

"The latest move has unwound the long yen position built up in the first few months of 2025."

Above: GBP/JPY at monthly intervals.

And, Soc Gen analysts Reo Sakida in Tokyo and Stephen Spratt in Hong Kong say that markets could be over-egging the 'Takaichi trade':

"Even with a majority in the House, the administration is unlikely to pursue aggressive fiscal expansion immediately."

Juckes says you would be brave to start buying yen at these levels, given the force behind the move (the old adage about catching falling knives applies here), but the time to consider such a move is nearing.

He says there is "a case for a ‘buy the dip’ strategy in long JGBs. The same is likely true for the yen. A spike in the coming days, may finally be an opportunity to go short USD/JPY."

Above: USD/JPY at monthly intervals.

Source: Poundsterlinglive

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Adam

Stocks

Economic

OPENING CALL

Stocks looked set to fall on Tuesday, with investors reluctant to make any major moves ahead of the start of earnings season and consumer price index inflation print.

The dip in futures probably reflects some apprehension ahead of the December CPI report, which will help decide if the Federal Reserve has scope to cut interest rates.

JPMorgan's results will offer investors a look at how consumers are holding up, and whether a boom in trading and investment banking revenue has continued.

Wall Street will also be on alert for any comments from CEO Jamie Dimon on the investigation into Fed Chair Jerome Powell after central banks from around the world issued a statement in an unprecedented show of solidarity.

Investors will also be trying to figure out what will happen with tariffs-the Supreme Court has scheduled Wednesday as its next opinions day, and Trump said overnight that the U.S. would be "screwed" if it rules against his administration's reciprocal levies.

Oil prices climbed to their highest level since November after Trump said the U.S. would impose a 25% tariff on any country doing business with Iran.

In Japan, the Nikkei Stock Average closed Tuesday 3.1% higher --a record high--driven by expectations that a potential general election next month could solidify Prime Minister Sanae Takaichi's standing, allowing her to take bolder steps to boost the economy.

The dollar earlier reached a one-and-a-half-year high and the euro hit a 35-year high against the yen.

Stocks to Watch

AbbVie agreed to invest $100 billion in U.S. operations and lower Medicaid prices in exchange for tariff and pricing exemptions.

Fortress Biotech amended a credit agreement to extend its maturity. The stock rose 4.8% after hours.

Par Technology was selected to be Papa John's International's new point-of-service technology platform. Shares advanced 5.7% after the bell.

TSMC plans a significant expansion in Arizona as part of a potential U.S.-Taiwan trade agreement, The Wall Street Journal reported. Shares gained 1.2% in Taipei.

Watch For:

CPI for December; Earnings from J.P. Morgan, Delta Air Lines

Today's Top Headlines/Must Reads:

-GOP Senators Criticize Probe of Fed Chair Powell

-Here in Midland, Texas, the Last Thing Anyone Wants Is Cheap Venezuelan Oil

-America's Biggest Power Grid Operator Has an AI Problem-Too Many Data Centers

MARKET WRAPS

Forex:

The dollar rose after several Republican lawmakers pushed back against the criminal investigation into Powell.

Senator Thom Tillis vowed to block all Fed nominees in response to the investigation.

"That's significant, because the Senate Banking Committee is split 13-11 to the Republicans, so Tillis' opposition would lead to a split if the others voted along party lines," Deutsche Bank said.

The euro traded steady versus the dollar.

"Unless the Fed independence trade returns, [the euro] might have missed its chance of a break above $1.1700 yesterday."

The dollar could recover further if data U.S. inflation exceeds expectations in December, it added.

USD/JPY might extend its uptrend to 160.00, based on technical charts, StoneX said, adding that USD/JPY could tag 160 as early as Thursday if yen bears get their way.

Fitch Ratings expects the yen to appreciate by about 6% against the dollar this year.

Bonds:

Treasury yields edged higher with the December CPI data a key input ahead of the Fed's January meeting.

"While this is the final CPI print ahead of the late-January FOMC meeting, it is unlikely to alter Fed policy," ADSS said.

" Today's CPI may, however, influence expectations for the remainder of the year , with markets currently pricing two further cuts in 2026."

The risk premium on Treasurys could rise if the investigation into the Fed Chair is prolonged or gets messier , BNY said.

The term premium on the 10-year Treasury note is among the highest seen in the past decade but "it could rise further if the central bank's independence and credibility were seen ebbing."

Energy:

Oil prices climbed to their highest level since November.

" The potential for reduced Iranian supply has tempered earlier bearish sentiment driven by expectations of a global glut , while concerns persist that the tariff move could strain relations with major crude buyers such as China, which accounts for most of Iran's oil exports," MUFG said.

"Markets are also balancing this with developments in Venezuela."

UOB said Brent crude oil's breakout from its falling wedge pattern signals potential for near-term continued recovery, adding that a break above $65.50/bbl could possibly trigger a swift rise to $66.80/bbl.

Metals:

Gold slipped in early trading but continued to hold above the $4,600 mark on growing concerns over the Fed's independence and rising tensions in Iran.

Gold continued to be supported by broader economic and geopolitical risks , with Trump's decision to impose a 25% tariff on any country doing business with Iran only boosting bullion's safe-haven appeal even further.

State Street Investment Management said spot gold now had a more than 30% chance of hitting $5,000 this year .

TODAY'S TOP HEADLINES

Oracle Hack Still Generating Ransom Demands

A growing number of companies are facing ransom demands from hackers who stole sensitive data through security flaws in widely-used Oracle business software nearly six months ago.

The breach, which exposed personal and financial data stored in Oracle E-Business Suite software, bore the hallmarks of an online extortion group known as Clop-a name derived from a Russian term for bed bug, cybersecurity experts said. The group is also known as Lace Tempest, Gold Tahoe and other aliases.

SK Hynix to Build $13 Billion Chip Packaging Plant in South Korea

SK Hynix, a major supplier of high-bandwidth-memory products to Nvidia, plans to build a $13 billion chip packaging plant in South Korea amid surging demand for artificial-intelligence chips.

The South Korean memory-chip maker said Tuesday it will spend 19 trillion won to build an advanced facility for packaging and testing AI chips in Cheongju, south of Seoul.

AI Has Shopping in Its Sights. Amazon Is Pushing Back.

Humanoids, self-driving, and autonomous agents may be the next frontier for artificial intelligence, but, for now, AI providers would be happy to make shopping the next big AI trend.

With an announcement last week, Microsoft joined OpenAI and Alphabet in offering a shopping checkout experience inside their AI chatbots. These are at an early stage, with limited retail partners on board so far, and there is a big hurdle to making these one-stop shopping apps. But it's part of a plan to make chatbots full-fledged platforms.

Orsted Shares Jump as U.S. Judge Rules Work Can Resume at Revolution Wind Project

Orsted shares jumped Tuesday after a U.S. judge ruled that work could resume at the company's Revolution Wind project off the coast of Rhode Island.

Shares were 5.5% higher in early European trade.

Smaller Natural Disasters Incurred Record Insurance Costs Last Year

Small-scale natural catastrophes in the U.S. are becoming costlier for insurers.

For the first time in a decade, the U.S. was spared by a direct hurricane hit in 2025. But claim costs for non-peak perils-which cover the more frequent and localized natural disasters, typically on a smaller scale-reached their highest to date for 2025, according to the report published Tuesday.

Trump Allies and Officials Fear Blowback From Powell Probe

WASHINGTON-Some Trump administration officials and allies have expressed concern that the Justice Department's criminal investigation into Federal Reserve Chair Jerome Powell could imperil the president's nominees in the Senate and rattle financial markets.

Among those alarmed about potential fallout was Treasury Secretary Scott Bessent, who called Trump Sunday night and told him that the investigation could cause several issues for the administration, according to people familiar with the matter. Bessent was worried about an impact on financial markets and hurdles during the Senate confirmation process for whomever the president selects to be the next Fed chairman once Powell's term ends in May, the people said.

Oil Hits 7-Week High. Trump Tariffs Threat Sparks Concern Over Iran Supply.

Oil hit its highest level since November after President Donald Trump said he would impose a 25% tariff on goods from countries "doing business" with Iran, in the wake of deadly protests in the Islamic Republic.

Brent crude futures are trading at $64.19 a barrel, after jumping more than 3.9% over the previous five sessions. Elsewhere, West Texas Intermediate is up slightly at $59.81.

Eurozone's Household Saving Rate Declined in Third Quarter

The eurozone's saving rate fell in the third quarter of last year, helping support the economy as spending modestly recovered.

The household saving rate decreased to 15.1% in the three months through September from 15.4% in the second quarter, the European Union's statistics agency Eurostat said Tuesday. Consumption increased at a faster rate than gross disposable income, it said.

Iran Is Hunting Down Starlink Users to Stop Protest Videos From Going Global

With the government shutting down the internet and throttling phone services, Iranians are leaning heavily on Elon Musk's Starlink service to share videos of growing protests and the regime's escalating crackdown with the world.

But Iran has intensified efforts to jam the service, which is banned in the country, and users are being hunted.

In Pivot on Affordability, Trump Unveils Barrage of Proposals to Address Costs

Source: morningstar

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Henry Thompson

Remarks of Officials

Political

Central Bank

Economic

Bond

A Department of Justice criminal investigation into Federal Reserve Chair Jerome Powell's testimony is creating new risks for U.S. monetary policy, according to an analysis by Bank of America. While the development introduces a fresh layer of uncertainty, markets have so far absorbed the news without significant volatility.

Markets Remain Calm Despite Investigation

Bank of America economist Aditya Bhave noted that markets have "essentially looked through the news." The 30-year Treasury yield, a key indicator of market sentiment on long-term Fed policy, rose by only about 2 basis points. Bhave pointed out that such a move is minimal compared to what might typically express "concerns about Fed independence."

This muted reaction stands in stark contrast to market behavior last summer. When then-President Trump hinted he might remove Powell from his post, the 30-year yield saw a much sharper response. According to BofA, the yield jumped 8 basis points on July 11 and another 11 basis points during intraday trading on July 16 before pulling back.

Shifting Odds on Powell's Future at the Fed

Powell’s own firm response to recent speculation may have altered investor expectations about his tenure. BofA analysts believe his actions have increased the perceived probability that he will remain on the Fed Board as a Governor even after his term as chair concludes in May.

Citing data from Polymarket, the bank highlighted that the probability of Powell leaving the board by the end of the year has dropped from 83% to 57%.

New Headwinds for Monetary Policy

Despite the market's calm, Bhave warned that the investigation could have significant policy implications. The situation "might also galvanize the hawks on the FOMC," making it more challenging for a future, more dovish Fed chair to justify rate cuts based purely on economic data.

Looking ahead, Bank of America suggested that a separate event has become even more critical for the Fed's future. The Supreme Court's hearing on Governor Lisa Cook's case, scheduled for January 21, is now viewed as "more important for the policy trajectory than the identity of the next Fed Chair." A ruling against Cook, the bank concluded, would "significantly raise the probability" that Powell could also face removal.

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