U.S. financial markets reacted nervously on Monday as the escalating feud between President Donald Trump and Federal Reserve Chair Jerome Powell intensified. The dollar weakened across major currencies, and S&P 500 futures fell by 0.5% after Powell revealed that the Justice Department had subpoenaed him and threatened criminal charges over his congressional testimony on last year’s Federal Reserve building renovation. The dispute has fueled concerns about the central bank’s independence and the potential political influence over U.S. monetary policy.

Investors responded to the tension by moving into safe-haven assets. Gold surged to a record high of over USD4,600 per ounce, buoyed also by geopolitical risks, including unrest in Iran. The Swiss franc strengthened 0.4% to 0.7979 per dollar, while the euro firmed 0.17% to USD1.1656. Fed funds futures indicated expectations for slightly deeper rate cuts later this year, reflecting market speculation that the central bank might feel pressured by political developments.

Powell framed the subpoena as a pretext, noting that the Justice Department’s investigation was not about the renovation project itself or Congress’s oversight but an effort to coerce the Fed into lowering interest rates faster than it deems appropriate. He stressed that the Fed sets policy to maintain price stability and support employment, not to follow presidential preferences. “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions - or whether monetary policy will instead be directed by political pressure or intimidation,” he said.

The confrontation between Trump and Powell is rooted in the president’s long-standing demands for lower rates. Trump publicly criticized the Fed chair over borrowing costs and has even suggested replacing him, though Powell benefits from legal protections against removal over policy disagreements. The dispute escalated after revelations that the Fed’s Washington headquarters renovation cost over USD600 million more than initially projected, prompting scrutiny from Trump and his allies.

Lawmakers from both parties reacted sharply to the Justice Department’s action. Republican Senator Thom Tillis said the move undermines both the Fed’s and the Justice Department’s independence, vowing to block any Fed nominations until the matter is resolved. Democratic Senator Elizabeth Warren accused Trump of attempting a “corrupt takeover” of the central bank. Some GOP hardliners welcomed the move, viewing it as pressure on Powell, while others warned it could set dangerous precedents.

Markets have already reflected the fallout. The dollar fell sharply, including against typically risk-sensitive currencies such as the Australian and New Zealand dollars, and posted its largest one-day drop since mid-December. After a challenging 2025 in which the dollar lost over 9% against major peers, investors are wary of the long-term implications of political interference on the Fed’s credibility. Brent crude futures held most of their recent gains, trading around USD62.90 per barrel, influenced by global geopolitical tensions and Trump’s ongoing threats regarding Iran.

Powell, who has served under four presidential administrations, emphasized his commitment to public service and central bank independence. He reiterated that he would continue to fulfill the Fed’s dual mandate of price stability and maximum employment, undeterred by threats or political pressure. Market observers, including Mohamed El-Erian of Allianz, noted that Powell’s statement may have a more pronounced effect on investor confidence than the subpoena itself, underscoring the fragility of market sentiment amid political tensions.