Markets flinch as US Fedchief Powell flags DOJ threat

MUSCAT, JAN 13

An Oman-based economist has warned that any perceived weakening of US Federal Reserve independence could ripple through the dollar, equities and safe-haven trades, after Federal Reserve Chair Jerome Powell said the US Department of Justice served the Fed with grand jury subpoenas and threatened criminal charges linked to his congressional testimony on a headquarters renovation project.

In a LinkedIn post, economist Azza al Habsi said the issue matters for anyone earning, saving or investing in US dollars or US-linked assets, arguing that the focus has shifted beyond inflation and jobs to confidence in institutions and the credibility of the US monetary framework.

Powell, in a statement published by the Federal Reserve on Sunday, said the threat of criminal charges was “not about” the renovation project and called it “pretexts”, arguing it was a consequence of the Fed setting interest rates based on its mandate rather than “following the preferences of the President”. He added he would continue to serve “with integrity and a commitment to serving the American people”.

The White House has denied involvement in the probe and Trump has said he did not know about it, according to Reuters.

White House economic adviser Kevin Hassett told CNBC he was not involved in discussions with the Justice Department about the investigation, while expressing support for scrutiny of the renovation costs and saying he would welcome oversight if he were Fed chair. Reuters has reported Hassett is among names viewed as a possible Trump pick to replace Powell.

Markets reacted sharply. Gold jumped to a record around $4,600 an ounce and the dollar weakened, as investors sought safety and reassessed political risk around the central bank’s autonomy, Reuters reported.

Powell’s term as Fed chair ends on May 15, 2026 and Trump said last month he already knows who he intends to pick as Powell’s successor, though he has not named the choice, according to Reuters.

Ratings agency Fitch said the Federal Reserve’s independence is a key factor supporting the United States’ AA+ sovereign rating, underlining the broader stakes if investors begin to question institutional checks and balances.

In her post, Al Habsi said investors should watch longer-dated US Treasury yields closely, arguing that if tensions persist, the bond market may become the clearest constraint on further political escalation.