Powell Signals Resolve Amid DOJ Subpoenas, Markets React to Fed Independence Concerns

Federal Reserve Chair Jerome Powell delivered a firm statement on January 12, 2026, vowing to uphold the Fed’s independence despite recent subpoenas from the Department of Justice. The subpoenas, targeting internal communications and decision-making records from the past three years, have raised concerns about potential legal challenges to the Fed’s policy actions during periods of high inflation and rate hikes. Powell emphasized that the central bank would not be deterred by external pressure, asserting that its mandate to maintain price stability and maximum employment remains paramount. The market response was immediate. The U.S. dollar index (DXY) dropped 0.7% to 104.95, reflecting growing uncertainty over future monetary policy. The 10-year Treasury yield (US10Y) rose to 4.82%, up 12 basis points from the previous close, as investors priced in higher volatility and potential delays in rate cuts. Meanwhile, the S&P 500 (SPX) declined 1.1% to 5,318.42, with technology and financial sectors leading losses. The federal funds rate (FEDFUNDS) futures market now implies a 60% probability of a rate cut in June 2026, down from 72% prior to the announcements. The subpoenas are believed to be linked to the Fed’s emergency lending programs during the 2022–2024 period, including the Term Auction Facility and the Bank Term Funding Program. Although the DOJ has not publicly detailed the scope of the investigation, the legal scrutiny marks an unprecedented level of external oversight on a traditionally insulated institution. Market participants are now weighing the implications for future policy transparency and central bank credibility.