Growing political tension in the United States is raising fresh concerns about the Federal Reserve's independence, after reports emerged that the US Department of Justice (DoJ) has opened a criminal investigation into Fed Chair Jerome Powell.
According to multiple international media outlets, the investigation concerns Powell's testimony before a Senate banking committee last year about large-scale renovation work at the Federal Reserve's historic Washington headquarters. Federal prosecutors are reportedly examining whether Powell misrepresented details about the scope and cost of the project.
Powell has firmly rejected the allegations, stating that the legal action is not about construction spending, but rather an attempt to intimidate the central bank after it refused to comply with political demands for aggressive interest rate cuts. He has described the investigation as an unprecedented escalation in pressure on the Fed, warning that it risks undermining monetary policy independence.
The development comes amid renewed criticism from President Donald Trump, who has repeatedly accused the Federal Reserve of holding back economic growth by maintaining higher interest rates. While the Fed began cautiously reducing rates after inflation eased from post-pandemic highs, policymakers stopped short of the rapid cuts the White House had been calling for.
For markets globally, including Australia, the situation is significant. The credibility and independence of the US Federal Reserve underpin global capital flows, bond markets, currencies, and equity valuations. Any perception that US monetary policy could be influenced by political considerations rather than economic data introduces new layers of uncertainty for investors.
Powell, who was first appointed Fed chair by Trump and later reappointed by President Joe Biden, has emphasised that he has served under administrations from both major parties without political bias. His term as chair expires in May, though he may remain on the Fed’s board until 2028.
Meanwhile, reports indicate that the Trump administration has already taken steps to reshape the Fed's leadership, appointing political allies to key roles and seeking to remove other governors. Analysts warn this could signal a broader attempt to exert control over future interest rate decisions.
For Australian investors, these developments warrant close attention. Heightened US political risk can influence the Australian dollar, commodity prices, global risk sentiment, and local equity markets — particularly sectors sensitive to global liquidity conditions such as resources, technology, and financials.
As global markets digest the unfolding situation, investors should remain alert to volatility stemming from policy uncertainty in the world’s largest economy.
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