This week, the US Department of Justice (DOJ) under the Trump administration launched a criminal investigation into Federal Reserve Chair Jerome Powell. While the official reason cited is “misleading Congress” regarding building renovations, most experts believe this is actually political pressure to force the Federal Reserve to cut interest rates faster.
In an unprecedented move on January 13, 2026, heads of major central banks from around the world—including the European Central Bank (ECB) and Bank of England—issued a joint statement supporting Powell. They warned that attacking the independence of the Fed could destabilize the global economy.
Here is the complete report on this developing story, why the world is worried, and how this “Trump vs. Powell” battle could affect the Indian economy and your investments.
What is the Conflict About?
The Federal Reserve (the US Central Bank) is supposed to be independent of politics. Its job is to control inflation and employment, not to help a specific political party win elections.
- The President’s Demand: The US administration wants the Fed to slash interest rates immediately to boost the economy.
- Powell’s Stance: Jerome Powell has refused to cut rates aggressively because inflation is still a concern. He argues that cutting rates too fast could make prices skyrocket again.
- The Investigation: In response to Powell’s refusal, the US DOJ has issued subpoenas (legal orders) investigating him. Powell has publicly stated he will not resign and will continue to set policy “without political fear.”
Unprecedented Global Support
Usually, central bankers do not comment on other countries’ internal matters. However, the situation is so serious that on January 13, 2026, a group of global central bank governors issued a rare “Statement of Solidarity.”
Led by Christine Lagarde (ECB) and Andrew Bailey (Bank of England), the statement declared that central bank independence is “critical” for economic stability. They praised Powell for his integrity. This shows that the global financial community is deeply worried that if the US Fed becomes a political tool, the US Dollar could lose its trust.
Why Should India Care? (Impact on You)
When the US Federal Reserve sneezes, the world catches a cold. Here is how this chaos impacts India:
1. Stock Market Volatility (Sensex & Nifty)
Indian markets rely heavily on Foreign Portfolio Investors (FPIs). If US institutions become unstable, foreign investors tend to pull money out of emerging markets like India and move it to “safe” assets like Gold. This could lead to sudden drops in the Sensex and Nifty.
2. The Rupee (INR) vs Dollar
If the Fed is forced to cut rates artificially, the US Dollar might weaken temporarily. However, if the market loses faith in the US economy, it creates chaos. A volatile dollar makes it hard for the Reserve Bank of India (RBI) to manage the Rupee’s value, potentially making imported goods (like oil and electronics) more expensive.
3. RBI’s Dilemma
The RBI often aligns its monetary policy with the US Fed. If the US Fed’s decisions become unpredictable or politically motivated, the RBI will have a harder time deciding its own interest rates. This could delay cheaper home loan rates for Indian borrowers.
What Happens Next?
The standoff is currently intensifying.
- Legal Battle: Powell has made it clear he has the law on his side, as the US President cannot easily fire the Fed Chair.
- Market Reaction: Investors are closely watching the next Fed meeting in late January. If Powell holds his ground, markets might stabilize. If he is forced out, expect massive global turbulence.
Frequently Asked Questions (FAQs)
Q: Who is Jerome Powell?
Jerome Powell is the Chair of the Federal Reserve, which is the central bank of the United States. He decides interest rates that affect the global economy.
Q: Why is the US government investigating him?
Officially, the investigation is about alleged incorrect statements made to Congress about building renovations. However, widely, it is seen as pressure to force him to lower interest rates.
Q: How does this affect my investments in India?
Political instability in the US can cause foreign investors to sell Indian stocks, leading to a market fall. It is advisable to stick to long-term SIPs and not panic during such geopolitical news.
Q: Can the US President fire the Fed Chair?
Legally, it is very difficult. The Federal Reserve Act protects the Chair from being fired just for a policy disagreement. He can only be removed for “cause” (like criminal behavior), which is why the current criminal investigation is significant.
Q: Did the Fed cut interest rates recently?
The Fed has been cautious. While they paused hikes, they have not cut rates as aggressively as the government wants, which is the main cause of this conflict.