Fed Independence Under Siege: Powell Subpoenaed as Trump Pushes "Triple Stimulus"

The institutional integrity of the Federal Reserve faces its most severe test in decades. Chair Jerome Powell confirmed late Wednesday that he has received a subpoena from federal prosecutors regarding testimony on office renovations—a move widely interpreted by markets as political leverage rather than a standard legal inquiry.

The Battle for the Button

Powell characterized the investigation as a “pretext” to undermine the central bank's independence regarding interest rate policy. This clash comes as the Trump administration aggressively pulls three economic levers simultaneously to secure growth ahead of the midterm elections:

• Fiscal Expansion: A tax bill injecting nearly $200 billion into the economy.
• Credit Deregulation: Pressuring Fannie Mae/Freddie Mac to buy mortgage bonds and relaxing bank capital requirements.
• Monetary Pressure: Demanding rate cuts despite sticky inflation.

“Trump Trade” 2.0

Wall Street analysts note that this coordinated stimulus is creating a “sugar high” for US equities but poses systemic long-term risks, including a potential debt crisis and unanchored inflation expectations.

Following the news of the investigation, US Dollar crosses saw heightened volatility, with traders pricing in a higher risk premium for US assets due to the erosion of institutional norms.

Analyst View

“The market is now trading on a dangerous assumption: that liquidity will remain abundant regardless of inflation data,” noted a senior strategist at JP Morgan. “If the Fed's hand is forced, the bond market vigilantes may be the only ones left to discipline the Treasury curve.”