Powell Speaks Frankly

• Powell stated the threat is 'not about my testimony' or renovations but rather 'a consequence of the Federal Reserve setting interest rates based on our best assessment' rather than 'following the preferences of the President'
• Senator Tillis said the threatened indictment questions DOJ's 'independence and credibility' and vowed to block all Trump Fed nominees until the legal matter is resolved
• The dollar fell by the most in three weeks while gold reached record highs, though rate markets showed minimal change with only slightly higher odds of near-term cuts

Market Summary: Powell Speaks Frankly

Key Developments

Federal Reserve Chair Jerome Powell revealed Sunday that the Justice Department subpoenaed the Fed over his Congressional testimony regarding building renovation cost overruns. Powell denounced this as a "pretext" for the White House to gain influence over interest rate policy, stating the threatened indictment stems from the Fed "setting interest rates based on our best assessment" rather than "following the preferences of the President."

President Trump denied knowledge of the action, but the confrontation marks a significant escalation in tensions between the administration and the central bank.

Political and Market Response

Republican Senator Thom Tillis of the Senate Banking Committee called the threat into question and pledged to oppose all Trump Fed nominees, including Powell's successor, until the matter is resolved.

Market reaction was relatively muted:

• Rates markets priced in only slightly higher probability of near-term cuts
• The dollar fell the most in three weeks against currency baskets
• Gold hit record highs as investors sought safe havens
• Swiss franc strengthened against the dollar
• Asian equities remained strong, with Chinese stocks reaching 10-year highs
• European banks declined after Trump proposed capping credit card interest rates at 10%

Iran Developments

Protests in Iran intensified over the weekend, with over 500 killed and 10,000 arrested. Trump may meet Iranian officials and advisers Tuesday to discuss options. Despite concerns about supply disruptions from the major OPEC producer, oil prices showed muted response. Iran produces over 3 million barrels daily, and one-fifth of global oil supply passes through the nearby Strait of Hormuz. Both Brent and WTI rose over 3% last week.