Trump’s ‘unprecedented’ Federal Reserve investigation stokes further uncertainty

On Sunday (11 January), US Federal Reserve chair Jerome Powell raised alarm bells when he announced the US Federal Reserve was being subject to a Department of Justice (DOJ) investigation.

Powell warned that the “unprecedented” move was an intimidation tactic that threatened the independence of the US central bank and its ability to set monetary policy based on evidence, not political whims.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said in the statement.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.”

The DOJ’s indictment related to Powell’s testimony before the Senate Banking Committee in June 2025 concerning a project to renovate Federal Reserve office buildings. Powell warned that the “unprecedented action” must be seen in the broader context of pressure and threats from the Trump administration.

Speaking to Accounting Times, IFM Investors chief economist Alex Joiner said a move to indict Powell would only further entrench uncertainty surrounding the US market, with implications for Australia’s super sector, which was heavily invested in the US economy.

“There is an enormous amount of superannuation capital invested in the US and headlines like this only impart volatility to those markets where the Australian superannuation sector is heavily invested,” he said.

Joiner noted that investors would be wary of any moves that resulted in “an erosion of the frameworks and the institutions that underpin risks in the country.”

“To my mind there is no more important institution than the Fed, at least for financial market participants, to have confidence in when investing in the US.”

If the Federal Reserve’s independence were to be compromised in the eyes of investors, and ‘risk free’ US treasuries were seen to carry heightened risks, Joiner said that the US could face stark economic consequences which would reverberate through the global economy.

“It would probably inflict most damage on the United States itself because investors would lose confidence in investing in the US and what we would see is probably capital flight, notably out of fixed income markets, because that's where the central bank is most impactful with its policy,” Joiner noted.

Joiner said that uncertainty in the geopolitical and economic spheres would likely continue to dampen investment throughout 2026, particularly in the US.

“Uncertainty is so high that it is very hard to predict how rational investors should react. Usually when there's uncertainty, people tend to do nothing, which has probably been a bit of a theme.”

“Over the last 12 months, people have been much more cautious around their investments into the US … and we saw this in equity market performance across the world. Other markets have benefited from this investor uncertainty around the US.”