Why is the stock market seemingly unaffected by the criminal investigation involving Fed Chair Powell?

Widespread Reaction to DOJ Investigation of Fed Chair Powell

Within hours of news breaking that the Department of Justice had launched a criminal investigation into Federal Reserve Chair Jerome Powell, influential voices from across the financial and political spectrum expressed deep concern. Every living former Fed chair, numerous Wall Street leaders, and lawmakers from both parties quickly raised alarms about the probe.

Despite the uproar among officials, the stock market responded with relative indifference. Investors seemed largely unfazed, with stocks rebounding on Monday after an initial dip, and showing little volatility the following day. This was in stark contrast to the sharp declines seen after President Donald Trump’s "Liberation Day" tariffs were announced in April.

Inflation remained steady in December, presenting a challenge for the Fed as the DOJ’s inquiry into Powell continued.

Since the White House’s tariff announcement in April, the administration has retreated from its most aggressive trade measures, and analysts told ABC News that similar restraint is expected regarding the Powell investigation. Investors appear confident that the independence of the central bank will not be seriously threatened.

"You have to give these trial balloons a chance to be shot down," remarked Ed Yardeni, president of Yardeni Research and former chief investment strategist at Deutsche Bank’s U.S. equities division. "That’s what the market is banking on."

The investigation reportedly focuses on Powell’s congressional testimony in June regarding cost overruns in a major office renovation project. Powell, appointed by Trump in 2017, released a rare video statement condemning the probe as a politically motivated attempt to sway Fed policy.

This development comes after months of harsh criticism from Trump, who has repeatedly pressed the Fed to slash interest rates. In a brief interview with NBC News, Trump denied any involvement in the DOJ’s actions.

Attorney General Pam Bondi’s spokesperson told ABC News, "The Attorney General has instructed her U.S. Attorneys to prioritize investigating any abuse of taxpayer dollars."

The Federal Reserve has long operated with a tradition of independence, shielding it from direct political pressure.

Experts have previously explained to ABC News that when a central bank’s autonomy is compromised, policymakers may be tempted to keep interest rates artificially low to spur short-term growth. However, this can trigger prolonged inflation as consumer demand rises unchecked.

Concerns Over Fed Independence and Historical Lessons

On Monday, a bipartisan coalition of economists and former senior Fed officials issued a joint statement emphasizing, "The Federal Reserve’s independence and the public’s trust in that independence are vital for economic stability. The reported criminal investigation into Chair Jay Powell represents an unprecedented use of prosecutorial tactics to undermine that independence."

Andrew Caballero-Reynolds/AFP via Getty Images - PHOTO: Donald Trump speaks with Federal Reserve chair Jerome Powell (R) during a visit to the Federal Reserve in Washington, DC, on July 24, 2025.

The economic turbulence and high inflation of the 1970s and 1980s serve as a warning. Before inflation surged, President Richard Nixon pressured then-Fed Chair Arthur Burns to lower rates ahead of the 1972 election—a move widely blamed for fueling runaway inflation.

Nearly ten years later, in 1981, the Fed hiked interest rates to 20% to rein in inflation. While this curbed price increases, it also triggered a recession and pushed unemployment to 10%.

Despite the current investigation, Wall Street analysts say most investors remain unconcerned, believing the Fed’s independence is unlikely to be meaningfully compromised.

Senator Thom Tillis (R-N.C.), who could play a key role in confirming Trump’s nominee to replace Powell, criticized the investigation and threatened to block any successor. Some Republican lawmakers voiced rare criticism of the probe, while others supported it.

"Investors still believe the Fed will maintain its independence from political interference for the foreseeable future," said Bret Kenwell, an analyst at eToro.

Treasury Secretary Bessent has expressed dissatisfaction with the investigation into Powell and has communicated concerns to Trump, according to sources.

Ivan Feinseth, a market strategist at Tigress Financial, summed up the prevailing sentiment: "Investors don’t think the investigation will amount to anything."

Some analysts noted that investors’ skepticism about the economic impact of dramatic political headlines has often been justified. The stock market ended 2025 on a high note, overcoming challenges like tariffs, a government shutdown, and Trump’s contentious social media activity.

Meanwhile, the U.S. economy has shown resilience, with strong corporate earnings and robust growth. In the fall, consumer spending helped drive the fastest quarterly economic expansion in two years, according to recent government data.

Yardeni concluded, "The markets learned from the whole tariff saga that, ultimately, economic and earnings resilience matter most. One lesson I’ve learned is not to let politics interfere with investment decisions."