Federal Reserve's Independence Under Test: Why Powell's Criminal Investigation Is Worrying the Market

According to the latest news, Goldman Sachs Chief Economist Hazos expressed concern over the criminal investigation into Federal Reserve Chairman Powell, believing that this will intensify market worries about the Fed’s independence. While he expects the Federal Open Market Committee (FOMC) to continue making interest rate decisions based on statutory responsibilities and economic data, the underlying issues reflected by this event warrant in-depth understanding.

Why Independence Is So Critical to the Fed

The Fed’s independence is not an abstract concept but a core mechanism affecting the stability of global financial markets. The core value of central bank independence includes:

• The ability to resist short-term political pressures and formulate long-term optimal monetary policies
• Avoiding the use of the central bank as a political tool, maintaining professionalism and coherence in policy
• Protecting monetary credibility and preventing inflation or asset bubbles caused by political interference
• Making necessary but unpopular decisions during economic crises

Historically, many countries that have weakened their central bank independence have experienced severe currency devaluations and economic crises. That’s why any threat to the Fed’s independence is highly sensitive in the market.

Potential Impact of Political Pressure on Central Banks

The criminal investigation into Powell essentially reflects that the Fed Chair is under political pressure. From a market perspective, this could have several layers of impact:

Policy decision uncertainty

Even if the FOMC remains legally independent, when the leader faces legal issues, the stability and transparency of its decisions may be questioned. Markets might doubt the Fed’s policy signals.

Risks of personnel changes

If the situation worsens, it could lead to a change in the Fed Chair. Powell’s successor might have different attitudes toward interest rates, quantitative easing, and other policies, increasing policy uncertainty.

Market confidence shake

The credibility of the Fed is the foundation of the US dollar as the global reserve currency. Damage to independence could directly weaken this credibility, affecting the dollar’s status and global financial markets.

Connection to the Cryptocurrency Market

For crypto investors, the independence of the Fed is not a distant macro topic but one that directly impacts:

• Liquidity environment: Fed policy determines global liquidity levels, directly affecting crypto asset valuations
• Risk appetite: Policy uncertainty can reduce market risk appetite, potentially leading to outflows from high-risk assets (including cryptocurrencies)
• Dollar strength/weakness: Diminished Fed independence may weaken the dollar, indirectly impacting dollar-denominated crypto assets
• Regulatory environment: Declining central bank credibility could prompt regulators to adopt more aggressive measures, including tighter regulation of crypto assets

Short-term and Long-term Outlooks

Short-term

Hazus’s expectations may be correct. As a collective decision-making body, even if the Chair faces pressure, committee members may still adhere to data-driven decisions. From this perspective, we might not see a sudden policy shift.

Long-term

More concerning is whether political pressure will continue to accumulate. If similar events keep happening, market concerns about the Fed’s independence could escalate gradually, potentially triggering market reactions at some future point.

Summary

The criminal investigation into Powell raises an important question: in an era of increasing political pressure, how long can central bank independence be maintained? Hazus’s view reflects a balanced market attitude—trust in institutional resilience but also acknowledgment of risks.

For the cryptocurrency market, this is a key macro signal. Any erosion of Fed independence will ultimately transmit to crypto asset prices through changes in liquidity, policy uncertainty, and market sentiment. This topic warrants ongoing attention, especially in the coming months if new developments regarding Powell’s investigation emerge.