In short
- The Justice Department has filed a criminal lawsuit against US Federal Reserve Chairman Jerome Powell.
- Powell claims the DOJ investigation is a “pretext” for an attack on the Fed’s independence aimed at pressuring its interest rate decisions, a claim also echoed by a Republican senator.
- The event could lead to a long-term revaluation of non-government assets such as Bitcoin as a hedge against compromised monetary institutions.
The Justice Department has opened a criminal investigation into incumbent US Federal Reserve Chairman Jerome Powell – an unprecedented legal move that raises concerns about the central bank’s independence.
“The legal proceedings have added a new layer of uncertainty to the macro front,” said Jimmy Xue, co-founder and COO of quantitative returns protocol Axis. Declutter. “The challenge to central bank autonomy reinforces Bitcoin’s narrative as a ‘neutral’ asset that operates independently of legal or political disputes.”
Xue noted that this “perceived neutrality attracts institutional capital that sees Bitcoin as a hedge against the risk that monetary policy could be influenced by executive-level lawsuits.”
In early market reactions, port assets gold and silver rose by almost 2% and 5% respectively. Bitcoin recorded a relatively muted reaction, rising 1.7% to $92,000 Coin gecko facts.
Powell confirmed the investigation on Sunday statementnoting that it centers on allegations that he misled Congress over a headquarters renovation project. Powell dismissed these allegations as a “pretext.”
Instead, he described the investigation as a direct attack on the Fed’s autonomy.
“This is about whether the Fed will be able to continue setting interest rates based on evidence and economic conditions – or whether monetary policy will instead be guided by political pressure or intimidation,” Powell said.
The investigation is being overseen by U.S. Attorney for the District of Columbia Jeanine Pirro, a Trump appointee, a detail that quickly provoked political backlash from within the president’s own party.
Senator Thom Tillis (R-NC), ranking member of the Senate Banking Committee, condemned the action as a clear attempt to undermine the Fed’s independence and vowed to block all Fed nominations, including the upcoming vacancy for chairman, until the matter is resolved.
“It is now the independence and credibility of the Justice Department that are at stake,” Tillis said on Sunday statement.
“This escalation in Trump’s war against the Fed smells like Powell is not stepping down from the board after his role as chairman ends… they want to make his life hell by trying to force it,” a Federal Reserve spokesperson said. tweet from Quinn Thompson, CIO of Lekker Capital, who suggests the fight could create a leadership vacuum at the central bank.
After twelve months of silence, Fed Chairman Powell is fighting back against President Trump, according to a statement on Sunday tweet from The Kobeissi Letter. The legal development comes as the Fed is expected to pause interest rate cuts again on January 28.
What this means for crypto
If the Justice Department’s case succeeds, it would set an “extremely dangerous precedent,” said Tim Sun, senior researcher at HashKey Group. Declutter. “The president could use the executive branch and the judicial system to punish a central bank chairman for not adhering to his preferred monetary policy.”
A scenario that directly challenges the foundations of the dollar system by questioning the Fed’s independence would destabilize and erode confidence in the entire dollar and U.S. Treasury system, Sun explains. As such, it would permanently embed political intervention into pricing models, benefiting decentralized, non-sovereign assets that cannot be manipulated.
In the short term, Sun expects more volatility than an immediate rally. “It would loosen interest rate expectations, distort the yield curve and initially lead to higher volatility in all risk assets – including Bitcoin,” he said.
The crucial shift would come later. “After the market completes this round of repricing, Bitcoin could gradually evolve into an institutional hedge at a narrative level,” Sun said, as investors price in a permanent risk premium for political interference.
“If the Federal Reserve were to become subordinate to the president, leading to a sharp depreciation of the dollar or a loss of control over interest rate expectations, then Bitcoin could indeed be approaching its historic moment,” he concluded.
However, Sun tempered immediate expectations, noting that Bitcoin remains pegged to the dollar for now.
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