US stock index futures moved sharply lower overnight after news broke that the Department of Justice had opened a criminal investigation into Federal Reserve Chair Jerome Powell. Mr Powell confirmed the probe in a rare direct video statement. He also offered a strong response, saying the charges had nothing to do with building renovations and his testimony to Congress in June, and everything to do with the Fed’s independence when it came to setting interest rates, ‘... based on our best assessment of what will serve the public, rather than following the preferences of the President.’
Source: TN Trader
The investigation has compounded an already tense standoff over central bank independence, coming at a time when the Fed is widely expected to pause further rate cuts after cutting rates three times in the latter part of 2025. President Trump has made clear he wants rates lower, adding political pressure as markets sit near record levels.
It also comes as President Trump prepares to announce his preferred candidate to replace Mr Powell as Fed Chair when the latter stands down in May. The VIX ticked higher as traders added downside protection, while Trump’s proposal to cap credit card rates at 10% for a year added another layer of uncertainty, particularly for banks.
Attention now turns to the start of the fourth quarter earnings season. JPMorgan, Bank of America, Wells Fargo, Morgan Stanley, Delta Air Lines, the Taiwan Semiconductor Manufacturing Company and Goldman Sachs are among the big names reporting this week. These should all help to provide some insight into consumer spending, trading activity and dealmaking as markets test whether fundamentals can justify current valuations.
The market will also digest the latest CPI and PPI inflation releases, which come out tomorrow and Wednesday, respectively. If these were to show signs of accelerating to the downside, investors are likely to price in further monetary easing from the Fed. The central bank has forecast just one 25 basis point rate cut this year, while the market currently expects two reductions.
