MW Why the market is now more sensitive to the latest battle between Jerome Powell and President Trump
By Jamie Chisholm
Precious metal prices surge as conflict intensifies
President Donald Trump, left, and Fed Chair Jerome Powell have clashed before, but Powell's reaction is new.
Heading into 2026, Bespoke Investment Group asked clients to choose what they thought were the biggest risks to sustained market growth. Many may be surprised to learn that less than 12% of responders picked an AI bubble.
Instead, more than a third were worried about an economic downturn, with 22% fretting over the political environment and 19.4% concerned about persistent inflation.
Now, obviously these factors are not siloed. They can impact each other. Any bursting of an AI bubble, for example, would likely hit the U.S. economy quite badly right now. And they are also widely-defined: the political environment cam include current geopolitical issues (Venezuela, Iran), domestic stress (protests against ICE), and government intervention in markets (President Donald Trump saying he will cap credit card fees at 10%).
But the reason markets appear so rattled at the start of the week is that angst over the political environment, and perhaps also its potential impact on inflation, has surged after Federal Reserve Chair Jerome Powell revealed U.S. prosecutors had launched a criminal investigation into him in relation to the renovation of the Fed's headquarters building.
Powell said in a statement that the investigation was the result of the Fed not acquiescing to Trump's desire for much looser monetary policy: "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions - or whether instead monetary policy will be directed by political pressure or intimidation."
Investors seem to share that interpretation and are clearly concerned -stock-market futures fell early in the session as increased policy ructions hit a market that has just registered a record high.
"What strikes me about the actions against the Fed is not that the current administration holds an adversarial view toward it. That isn't new, even if the grand jury angle is an incremental escalation," said Rich Privorotsky, head of European One Delta trading at Goldman Sachs
"What is surprising is that the Fed appears to be fighting back," Privorotsky added.
Stocks were also pressured by rising Treasury yields, which were moving up because investors demanded higher payments to compensate for the extra risk of a country whose administration and central bank are in open conflict.
Or, as some argued, rates were rising because the affair illustrated how far the White House would go to intimidate the Fed to lower borrowing costs despite inflation remaining stubbornly above the central bank's 2% target. Those concerns about revived price pressures explained why the inflation-sensitive 30-year yield rose about 5 basis points early Monday.
However, the more monetary policy-focused 2-year yield BX:TMUBMUSD02Y was little changed. And this suggests other traders were buying into the argument that the fresh attack on the Fed may cause Powell and colleagues to become even less likely to cut rates; partly out of a perceived need to stress independence but also because the uncertainty currently swirling means it's better to hold fire.
Oscar Munoz, chief U.S. macro strategist at TD Securities noted that the Fed's "responses to prior entanglements with the executive typically abstained from direct confrontation, but on this occasion the chairman's rebuttal is certainly more combative."
"We view this as a declaration of intentions, increasing the odds that Powell stays on as a Fed governor through 2028," Munoz added.
Ultimately, investors will welcome signs of Fed resistance, Munoz reckons, and this may curtail any additional Treasury market sell-off.
"We still look for a solid majority of FOMC voters to adopt policy decisions that are consistent with the Fed's dual mandate of full employment and stable prices. We forecast an additional 75 basis points of monetary policy easing this year, bringing the Fed funds rate down to 2.75%-3.00%," Munoz said. They are currently 3.50% to 3.75%.
One area of the market lacking ambiguity Monday was the precious metals space. Gold (GC00) and silver (SI00) both surged to fresh record highs as the Fed's fresh travails fed into the narrative that investors would be wise to seek dollar alternatives.
Goldman's Privorotsky said precious metals may remain attractive, along with the haven Swiss franc (USDCHF), as the Fed's credibility is questioned. "The world has been searching for stores of value for some time now. The mix of fiscal profligacy and a 'run it hot' ideology keeps feeding that dynamic," he said.
Focus may now start to turn to the U.S. consumer price index data for December, released on Tuesday. Should annual headline inflation come in notably higher than the forecast 2.7% then anxiety about a Fed at odds with the administration may heighten.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is down, while oil prices (CL.1) fall.
Gold (GC00) and silver (SI00) futures hit record highs above $4,600 an ounce and $84 an ounce, respectively, as traders worried about Fed independence.
Key asset performance Last 5d 1m YTD 1y S&P 500 6966.28 1.57% 2.03% 1.76% 19.55% Nasdaq Composite 23,671.35 1.88% 2.05% 1.85% 23.54% 10-year Treasury 4.201 3.40 2.00 2.90 -58.60 Gold 4602.7 3.20% 6.19% 6.24% 71.66% Oil 58.74 0.69% 3.63% 2.32% -25.44% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Shares of Capital One $(COF)$ and American Express $(AXP)$ are down 10% and 5% respectively after Trump said he may restrict credit card interest rates to 10%.
U.S.-listed shares of Abivax $(ABVX)$ are jumping on a report Eli Lilly $(LLY)$ is preparing a $17.5 billion bid for the biotech company.
Trump said he was mulling military options regarding Iran amid some of the biggest demonstrations against the Tehran regime in years.
Fed officials speaking on Monday include Richmond Fed President Tom Barkin at 8:00 a.m. Eastern, Atlanta Fed President Raphael Bostic at 12:30 p.m., New York Fed President John Williams at 6:00 p.m.
The fourth quarter corporate earnings season will kick into gear this week with JPMorgan Chase $(JPM)$ reporting results on Tuesday, Wells Fargo $(WFC)$, Bank of America (BAC) and Citi (C) reporting Wednesday, followed Thursday by Goldman Sachs $(GS)$ and Morgan Stanley $(MS)$.
The Treasury will announce the result of a $39 billion 10-year note auction at 1:00 p.m.
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The chart
The team at Longview Economics don't think that by close of play on Friday the S&P 500 and Nasdaq were particularly overbought. However, their short-term risk appetite scoring system for the broader market is now flashing sell. This points "to either a phase of consolidation (and rotation); OR some near term giveback in the major indices. Consistent with that, and reflecting the Trump-Powell news, U.S. equity futures are trading lower this morning," says Longview.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name NVDA Nvidia TSLA Tesla GME GameStop TSM Taiwan Semiconductor Manufacturing AAPL Apple PLTR Palantir Technologies AMD Advanced Micro Devices AMZN Amazon.com MU Micron Technology INFY Infosys
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January 12, 2026 06:57 ET (11:57 GMT)
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