by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with yesterday’s extraordinary news that the Justice Department has launched a criminal investigation against Federal Reserve Chair Powell. We next review several other international and US developments with the potential to affect the financial markets today, including the latest on President Trump’s effort to cajole US energy firms to invest in Venezuela’s oil sector and the president’s desire to temporarily cap credit card interest rates.

US Monetary Policy: Fed Chair Powell last night said he is being investigated by the Justice Department for crimes related to his testimony last summer about the reconstruction of the central bank’s headquarters. Powell insisted the probe is intimidation aimed at forcing him to slash interest rates to serve President Trump’s political purposes. As we noted last summer, our personal observation of the project suggests it is much bigger than the “renovation” most media describe. In a project that big, it should be easy for prosecutors to find some malfeasance.

• The move against Powell comes even though his term ends in May. Unleashing such an attack on him with so little time left in his term underscores how focused the White House has become on the mid-term elections this fall.
• In any case, our quantitative analysis does not suggest that short-term interest rates need to be slashed. We have long predicted that political pressure will force the Fed to cut interest rates more in 2026 than in 2025, but with the cuts coming mostly in the second half. Now, if Powell is forced to resign early, dramatic rate-cutting could come even earlier, despite the risk of boosting consumer price inflation.
• Most observers of the situation have focused on the Fed losing its independence to set interest rates, but the White House may also be hoping to influence the Fed’s purchase of assets. For example, administration officials would probably like to be able to direct the Fed to buy particular assets for their own political purposes.
• The potential change in the Fed chair has rekindled concerns about excessively low interest rates and currency debasement, prompting new weakness in the dollar and a jump in gold So far this morning, the greenback has depreciated about 0.4%. Gold prices have jumped 2.8% to a new record high of about $4,628 per ounce.

US Bond Market: In 55 investment grade deals, US corporations issued $95 billion of bonds last week, marking the highest weekly volume since May 2020 and the busiest start to a year on record. The surge reportedly reflects firms trying to lock in rates before a mountain of issuance related to artificial intelligence in 2026. With the new threats to Fed independence, even more firms may be tempted to issue bonds and lock in rates in the coming weeks.

United States-Venezuela: At a meeting on Friday afternoon, President Trump urged the executives of top US oil companies to invest $100 billion into rebuilding Venezuela’s oil industry. However, the officials generally pushed back, largely on grounds that there is still too much risk of their assets being seized. Of course, today’s relatively low oil prices are probably also a concern.

• Meanwhile, Treasury Secretary Bessent said the administration could ease some sanctions on the Venezuelan oil industry as soon as this week.
• Bessent also said the US would press the International Monetary Fund, the World Bank, and other international institutions to ease their measures against Venezuela to get the country’s oil flowing faster.
• All the same, as we have noted before, even if the US seizure of President Maduro and reduced sanctions lead to revived Venezuelan oil output, significant amounts of new supply may not become available for years.

United States-Greenland-Denmark: The Financial Times yesterday quoted several Nordic diplomats and officials as saying the North Atlantic Treaty Organization has no intelligence that Greenland is often surrounded by Chinese and Russian warships. The statements contradict recent assertions by President Trump. Nevertheless, separate press reports today say Trump has ordered the US special forces to develop plans for a military seizure of the island from Denmark.

• Some US officials have recently insisted that the president’s threats of military action to seize Greenland merely constitute pressure tactics to convince Denmark to sell the territory at a low price.
• Nevertheless, actions such as the seizure of Venezuelan President Maduro and the formal investigation into Fed Chair Powell suggest a similarly aggressive move to take Greenland cannot be ruled out. In such an event, the security situation between the US and Europe would change immediately, likely sparking significant market volatility.

United States-China: With little notice, the US late last week dropped its proposed ban on Chinese and some other foreign-made drones. The U-turn may reflect domestic resistance to crimping the supply of the products, but press reports suggest the key reason was to avoid antagonizing Beijing ahead of President Trump’s summit with General Secretary Xi this spring. If so, the development helps confirm our view that the administration’s evolving foreign policy will include lowering tensions with China, which is likely bullish for US and Chinese stocks.

United States-Iran: Anti-government protests continued throughout Iran over the weekend, with the death toll rising to at least 500. Meanwhile, press reports say the White House is mulling multiple strategies, including military strikes, if Tehran kills more of the protestors. The sources say most of the strategies being considered are non-kinetic, but given the president’s willingness to use force in places like Venezuela, investors probably should consider the risk of a US strike against Iran, a potential Iranian retaliation, and the market volatility that would likely follow.

Japan: Prime Minister Takaichi is reportedly mulling dissolving the lower house of parliament for a snap election early next month. Takaichi’s goal would be to capitalize on her 70% approval rating and boost the narrow majority now held by her Liberal Democratic Party and its coalition partner, the Japan Innovation Party. The risk is that Takaichi’s coattails may not be as strong as she thinks, and the LDP and JIP could lose seats. Nevertheless, the prospect of a more stable majority for the pro-business Takaichi may be a positive for Japanese stocks.

US Regulatory Policy: President Trump, in a social media post on Friday, called for capping credit card interest rates at 10% for one year, reviving a promise he made during his reelection campaign in late 2024. It isn’t yet clear how far the president would go to implement the cap, but it would be consistent with the administration’s willingness to intervene in the markets and the president’s new focus on affordability. Any such cap could be negative for financial assets.

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