Goldman Sachs: Powell investigation has ‘reinforced’ concerns about Fed independence
Goldman Sachs’ chief economist Jan Hatzius has warned this morning that the criminal indictment threat facing Federal Reserve chairman Jerome Powell has reinforced worries that central bank independence is being undermined.
Reuters reports that Hatzius told a 2026 Goldman Sachs Global Strategy Conference:
“Obviously there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns.”
Hatzius added, though, that he expected the Fed to continue to make decisions based on data:
“I have no doubt that he (Powell) in his remaining term as chair is going to make decisions based on the economic data and not be influenced one way or the other, cutting more or refusing to cut on the back of data that could push in that direction.”
Key events
Whoever succeeds Jerome Powell as Fed chair will probably have to pledge to cut interest rates to get Donald Trump’s backing.
But given a committee of policymakers votes to set US interest rates, the chair doesn’t have full control of the decision.
Mark Allan, senior economist at BNP Paribas Asset Management, explains:
“Every Fed Chair puts their imprint on the institution. This year will see a new Fed chair, one likely to leave behind a profound change at the Fed. To win Trump’s nomination, Powell’s successor will have pledged to the President that he will ease monetary policy meaningfully. Expect an attempt to deliver on that promise.
However, the Chair is only one member of the broader FOMC, he won’t be able to walk into his first Fed meeting and order the rest of the Committee to cut rates. But, he will always take the dovish side of any policy argument.
Expect him to downplay the risks of entrenched inflation from tariffs or immigration restrictions while doubling down on the importance of getting back to full employment. Whenever the Fed is faced with a tricky choice between cutting rates, or not, investors can expect the next Fed chair is likely to push for cheaper money.”
Long-dated US government bond prices have dropped today, as investors react to the Fed situation.
This has pushed up the yield, or interest rate, on 30-year US Treasury bonds by almost 5 basis points (0.05 percentage points), to 4.861%.
Ten-year Treasury bond yields are up too, by 3 basis points, to 4.2%.
That may indicate that the markets are anticipating higher inflation in the long term, if the Federal Reserve cuts interest rates more swiftly than expeted.
JPMorgan Asset Management have flagged the risk of a steeper Treasury yield curve, meaning long-term rates would rise more than shorter ones, on expectations of more aggressive rate cuts.
US to urge G7 to move faster on rare earths
Lisa O’Carroll
The US is to urge G7 countries to accelerate their efforts to mine their own rare earths in a bid to reduce China’s grip on the 17 soft metals vital for defence and modern life.
Ahead of a meeting of in Washington to discuss the topic, US treasury secretary Scott Bessent will tell them they “need to move faster”.
He has previously said the US is two years away from delivering its own rare earths with experts saying it can take as long as a decade to go from mine to factory floor, such is the difficulty in extracting the materials from ore.
The EU is hoping to achieve a supply in Kiruna in Swedish arctic in the next five years, with the chief executive of the LKAB mine saying China’s position was built by the West’s decision to vacate the industry in the 1980s.
“Nobody saw any future in mining, then the super-cycle started and China started to consume enormous volumes of metals,” said Jan Moström, referring to the boom at the turn of the century when China drove huge demand for commodities on the back of urbanisation.
Japan on Monday began a historic voyage to attempt to dig deep-sea rare earths at a depth of 6,000 metres to curb dependence on China with the scientific drilling boat, Chikyu leaving for the remote island of Minami Torishima in the Pacific, where surrounding waters are believed to contain a rich trove of valuable minerals.
Ahead of the G7 meeting, a US official on Sunday night said:
“Urgency is the theme of the day. It’s a very big undertaking. There’s a lot of different angles, a lot of different countries involved and we really just need to move faster.”
One intriguing question about the future of the Federal Reserve is whether Jerome Powell remains on its board after stepping down as chair, or departs.
If he did leave, that would create a vacancy which Donald Trump could use to appoint his favoured successor onto the board, and then into the chair’s seat.
Atakan Bakiskan, US economist at Berenberg, explains:
Although Powell’s term as Fed Chair ends in May, he can remain on the Board as a Governor until January 2028. That said, most chairs in the past have left the Fed once their chair tenure expired. If Powell resigns from his Governor position in June, the resulting vacancy would allow President Trump to make a new appointment. If he does not resign, someone else on the Board would need to step down for an outsider — such as Kevin Warsh or Kevin Hassett — to become Fed Chair.
That person could be Governor Stephen Miran. Unless Trump re-nominates him and the Senate confirms, he would have to step down from his Governor role anyway, as he is completing Adriana Kugler’s term, which expires on January 30. If, however Powell resigns, and the Supreme Court allows Trump to remove Lisa Cook from her Governor role, both Kevins could join Miran on the Fed Board. This scenario would significantly increase the likelihood of a Fed willing to cut rates, even if economic data does not strongly support such a move.
The US dollar has continued to dip through morning trading in Europe; the dollar is now down 0.35% against a basket of other major currencies.
Russ Mould, investment director at AJ Bell says the criminal investigation into Fed chair Jay Powell over a renovation of the central bank’s headquarters has “unnerved markets”, and raised questions about what might happen to the Fed once Powell steps down in May.
Mould adds:
There is a fear that Trump is meddling too much with policies that are meant to be set independently.
“The Fed bases its monetary policy decisions on various data points, and a key purpose is to keep inflation in check.
“Trump wants to lower borrowing costs, so consumers and businesses spend more money and propel the economy. However, what’s worrying markets now over Trump’s implied intervention is that the loss of Fed independence could lead to inflation getting out of control.
Goldman Sachs: Powell investigation has ‘reinforced’ concerns about Fed independence
Goldman Sachs’ chief economist Jan Hatzius has warned this morning that the criminal indictment threat facing Federal Reserve chairman Jerome Powell has reinforced worries that central bank independence is being undermined.
Reuters reports that Hatzius told a 2026 Goldman Sachs Global Strategy Conference:
“Obviously there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns.”
Hatzius added, though, that he expected the Fed to continue to make decisions based on data:
“I have no doubt that he (Powell) in his remaining term as chair is going to make decisions based on the economic data and not be influenced one way or the other, cutting more or refusing to cut on the back of data that could push in that direction.”
Bloomberg are reporting that Federal Housing Finance Agency director Bill Pulte was “a driving force” behind the Trump administration’s decision to subpoena the Federal Reserve, according to people familiar with the matter.
They say:
The head of the typically staid FHFA has been a vocal force within the administration, pushing controversial housing policy ideas and investigating Trump’s foes for mortgage fraud. Pulte submitted a criminal referral to the DOJ about Fed Governor Lisa Cook that is at the root of Trump’s push to fire her. The Supreme Court is set to take up the Cook case later this month.
A senior administration official said DOJ, not Pulte, is behind the subpoena which relates to Powell’s congressional testimony about Fed building renovations. The investigation is being run by the US Attorney’s Office for the District of Columbia, according to people familiar with the matter.
US Attorney for DC Jeanine Pirro signed off on the investigation into Powell, some of the people familiar with matter said.
Latest odds on Powell’s replacement: a tale of two Kevins
The battle to succeed Jerome Powell as chair of the Federal Reserve is a two-horse race, according to betting on predictions site Polymarket, with both horses called Kevin.
Kevin Hassett, the director of Donald Trump’s National Economic Council, is leading the betting at 43% this morning.
Close behind is Kevin Warsh, a former member of the Fed’s board of governors, at 41%.
Current board member Christopher Waller is running third, at 8%, followed by BlackRock executive Rick Rieder at 3%.
Trump has suggested he could name his pick this month; Powell’s term ends in May.
Powell probe is ‘not a good economic start for 2026’
The news that Jerome Powell is facing a criminal investigation is “shocking”, professor Costas Milas of the University of Liverpool’s management school tells us.
He explains:
Jerome Powell will definitely regret he is not living in ancient Roman times where interest rates were remarkably stable as they were set at a fixed value to reflect the local system of numerical fractions. The criminal charges against Fed Chair Jerome Powell will most likely make financial markets realise that Fed independence is under huge pressure.
As I recently noted in a blog for LSE Business Review, if financial markets lose confidence in the Fed, Fed, in turn, will lose its ability to tackle future financial crises. Not a good economic start for 2026…
Dow, S&P 500 and Nasdaq futures slide as DoJ probes Powell
The US stock market is set to open lower as investors react to the news that Federal Reserve Chair Jerome Powell said the Trump administration has threatened him with a criminal indictment.
A futures contract tracking the S&P 500 share index is down 0.75%, while Dow Jones Industrial Average futures are down 0.65%. Nasdaq 100 futures are down just over 1%.
Chris Beauchamp, chief market analyst at IG, says:
“The spat between Trump and Powell had been quiet of late, at least publicly, but the infighting has stepped up a gear following the DoJ’s investigation of the Fed. Gold has surged to a new high on the news, while US futures are weaker. This certainly wasn’t on our bingo card for 2026, but it represents a major crisis for markets and has the potential to restart worries about the dollar and US monetary policy. Earnings season might knock this story off the front page for a while, but it will now rumble along in the background.”
UK business secretary hints at help for hospitality
Lauren Almeida
UK business secretary Peter Kyle has hinted the government will make an announcement for the hospitality industry “in the coming days”, amid growing pressure from pubs, restaurants, shops and hotels to reverse an impending rise in business rates.
He told BBC Breakfast this morning:
“We have been in listening mode for quite some time now…I’ve been up in Birmingham meeting the hospitality sector, I’ve been meeting people who are running pubs right the way through, as recently as just last week.
And I think that we will be talking about this a bit more in the coming days.”
He added he would be prepared to talk further on the challenges facing the hospitality industry “when we have spoken a bit more about what we will be doing in future to make sure we have a thriving pub and hospitality sector”.
It comes as chancellor Rachel Reeves faces pressure to U-turn on a Budget announcement to scale back business rate discounts over the next three years. Government sources confirmed last week that Reeves was preparing a support package that would include reductions to business rates for pubs.
Heineken CEO steps down, shares drop
Shares in Dutch brewer Heineken have dropped by 2.4% in early trading after it announced the departure of its CEO.
Dolf van den Brink will step down on 31 May; back in October, Heineken warned that profits this year will be lower than expected due to weaker growth in Europe and the Americas.
Market sentiment hit by Powell probe
European stock markets have fallen at the start of trading, as investors ponder the criminal investigation into America’s top central banker.
In London, the FTSE 100 share index is down 18 points, or almost 0.2%, at 10,106 points, having ended last week at a new closing high.
France’s CAC is down 0.2%, while Germany’s DAX is flat.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, says:
“Global markets opened on the back foot this morning, with the FTSE 100 edging lower, alongside softer European markets and US futures pointing to a muted Wall Street open later today as investors grapple with fresh political turbulence and rising geopolitical risk.
Sentiment has been shaken by news of a criminal probe into Fed Chair Jerome Powell and his claims of political pressure from the Trump administration, while unrest in Iran and talk of possible US intervention add another layer of concern.
