Stock Market Takes a Hit as Trump’s Investigation into Fed Chair Jerome Powell Unfolds
The stock market has taken a significant hit as the Department of Justice opens a criminal investigation into Federal Reserve Chair Jerome Powell. This move is seen as an escalation by President Donald Trump in his attempt to pressure the central bank. As a result, stock futures have fallen, with the Dow Jones Industrial Average dipping 368 points, or 0.7%, and the S&P 500 futures shedding 0.6%.
Trump’s Plan to Cap Credit Card Rates Sparks Concern
Trump’s call to cap credit card rates for one year at 10% has also caused market indigestion. Critics fear that this plan, aimed at aiding affordability, would backfire and restrict lending, ultimately hurting consumers and bank profitability. Bank stocks have led the losses in early trading, with Citigroup down 4% in the premarket, JPMorgan and Bank of America off by more than 2%, and Capital One shares plunging 11% in early trading.
The Investigation into Powell
Powell confirmed in a video statement that federal prosecutors have opened a criminal investigation related to his Senate Banking Committee testimony on the renovation of Fed office buildings. He stated that the investigation was another attempt by Trump to influence the central bank’s monetary policy and that he would not bow to the pressure. Powell’s term as chair is up in May.
Impact on the Market
The Cboe Volatility Index, Wall Street’s fear gauge, has ticked higher in early trading, reflecting that traders are adding to protection in the options market as news of the Powell probe comes out. Jay Woods, chief market strategist for Freedom Capital Markets, notes that "the market has seen this before and doesn’t like it. It’s not about Powell at this point, it’s about the independence of the Fed." Gold futures, seen as a hedge against diminishing Fed independence, have jumped 2% as investors fear a political Fed would be hesitant to snuff out resurgent inflation.
The Bigger Picture
The fight over central bank independence is coming as the U.S. stock market trades at record highs. The S&P 500 and the 30-stock Dow both finished Friday’s session at new peaks, capping a winning week for the major benchmarks. Traders are preparing for the kickoff of earnings season, with major Wall Street banks set to report results in the days ahead.
Earnings Season Ahead
JPMorgan Chase, Bank of America, Morgan Stanley, and Goldman Sachs are all scheduled to release quarterly numbers, offering investors fresh insight into the health of consumer spending, dealmaking activity, and trading revenues. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, notes that "this is unambiguously risk off. We expect the dollar, bonds, and stocks to all fall in Monday trading in a sell-America trade similar to that in April last year at the peak of the tariff shock and earlier threat to Powell’s position as Fed chair, with global investors applying a higher risk premium to U.S. assets."
Conclusion
In conclusion, the stock market has taken a hit as the investigation into Fed Chair Jerome Powell unfolds. The market is reacting to the potential threat to the independence of the Federal Reserve and the implications of Trump’s plan to cap credit card rates. As earnings season approaches, investors will be watching closely to see how the major banks perform and how the market reacts to the ongoing developments. One thing is certain – the coming days will be crucial in determining the direction of the stock market and the future of the Federal Reserve.
