Every living former US Federal Reserve chair lined up behind Jerome Powell on Monday, calling the Justice Department’s criminal investigation into him an unprecedented threat to central bank independence. The joint statement, carried by Reuters, warned that politicised attacks of this kind are associated with weaker institutions and worse inflation outcomes. ([reuters.com](Link

Powell himself disclosed on Sunday that the Fed was served with grand jury subpoenas on Friday and threatened with a criminal indictment linked to his June testimony to the Senate about office renovations. In a rare video address posted by the Federal Reserve, he said the charges were a pretext to influence interest-rate decisions - a direct defence of the Fed’s operational autonomy. ([federalreserve.gov](Link

Reporting from the Washington Post/AP added detail on the probe’s focus - the multi‑year refurbishment of the Fed’s Washington buildings - and noted the Justice Department declined to comment while President Trump said he knew nothing about the investigation. ([washingtonpost.com](Link

The political fallout was immediate. Senator Thom Tillis, a Republican on the Senate Banking Committee, said he will oppose any Fed nominations, including a successor to Powell, until the legal issue is resolved. Powell’s term as chair ends in May, and Reuters reports the White House is already considering candidates for the role. ([theguardian.com](Link

Markets took the institutional risk seriously. The dollar fell after Powell’s video, with the DXY around 98.8, while gold surged to a fresh record above $4,600 an ounce as investors looked for safe assets, according to Reuters. Equities were softer and volatility picked up into the US CPI print this week. ([reuters.com](Link

For UK readers, the transmission showed up quickly in FX and equities. Sterling firmed roughly 0.4% to around $1.346, while the export‑heavy FTSE 100 drifted lower as a stronger pound and weaker US bank sentiment weighed; precious‑metals miners outperformed on the gold spike. That’s the picture from Reuters’ midday London updates. ([reuters.com](Link

Context matters for policy. The Fed cut rates three times in H2 2025, leaving the target range at 3.50%–3.75% as of 10 December. That is the operative setting Powell is defending - decisions taken by the FOMC against a 2% inflation goal and incoming data. ([federalreserve.gov](Link

What exactly is the legal clash about? The Department of Justice is scrutinising whether Powell misled Congress over the scale and cost of the Fed’s headquarters renovation. Powell’s counter is that the probe is not about buildings at all but about pressuring the central bank to cut faster - a view set out in his video statement and reflected in AP/Washington Post coverage. ([federalreserve.gov](Link

Why UK investors should care: if US monetary policy is seen as subject to political direction, global investors may demand a higher risk premium for holding long‑dated US assets. That can ripple across sovereign curves, including gilts, via term‑premium channels and cross‑market arbitrage. The initial move today favoured havens and a softer dollar; what lasts will depend on whether institutional confidence erodes or stabilises. ([reuters.com](Link

On sterling, a weaker dollar typically eases imported‑price pressures for UK firms that pay in dollars for energy, metals and components; it also trims some costs for UK households on dollar‑linked goods. The flip side is a stronger pound can weigh on FTSE exporters’ earnings translation. Today’s tape showed both effects in real time. ([reuters.com](Link

The Bank of England’s framework is a useful point of comparison. Since May 1997 the MPC has had operational independence to set Bank Rate to meet the 2% target - independence that the Bank explains is designed to keep decisions free from day‑to‑day political influence. That clarity is itself a market anchor. ([bankofengland.co.uk](Link

What to watch next: the US CPI release and the FOMC’s 27–28 January meeting for any signalling on how the Fed navigates politics while steering inflation. In parallel, keep an eye on the White House’s timeline for naming a Fed chair nominee and on Capitol Hill sentiment, which will shape confirmation prospects and, by extension, market risk‑premia. ([reuters.com](Link