From "sidelining the Federal Reserve" to "suing Powell" -- Trump, "unable to accept losing the election," decides to "take over the Federal Reserve"

The renovation of these two Federal Reserve buildings is a bit expensive—so expensive that it has put the Fed Chair on the headlines for a “criminal investigation.”

Over the past year, the media has reported on the Fed headquarters renovation like a luxury home inspection: the budget keeps rising, details are repeatedly scrutinized; at Congressional hearings, Powell has been pressed about “exactly what the outcome will be.” Such things are not rare in Washington: government projects, cost overruns, political bickering—a familiar process.

But it wasn’t until a “subpoena” appeared that the plot abruptly switched from an audit report to a political thriller.

According to Reuters and other media, the Justice Department served a grand jury subpoena to the Federal Reserve, using Powell’s testimony to the Senate Banking Committee in June last year as the entry point for a criminal investigation, focusing on whether he made misleading statements to Congress about the renovation project’s cost overruns and scope.

Even more dramatic, Powell is not “locking his emotions in a cabinet” as he usually does.

He issued a statement on the Fed’s website (along with a video), opening by clarifying that the Justice Department delivered the subpoena on Friday and threatening criminal charges. He then spoke strongly: the renovation and hearings are mere “excuses”; the real intention is—to use criminal pressure to force the Fed to set interest rates according to political preferences. The final sentence sounded like a message for all officials: public service sometimes requires “standing firm.”

Fed chairs rarely put the words “political threat” out in public. Once they do, it indicates the backstage consensus of “everyone pretending to be in their own role” is breaking down.

And this also explains why the market’s first reaction wasn’t to debate “whether the renovation is worth it,” but to find a safety cushion: after the news broke, the dollar weakened, gold surged, and stock index futures retreated.

If you treat this matter as “Powell’s personal trouble,” you’ll miss the bigger storyline:

When the Federal Reserve refuses to cooperate, the White House’s strategy is no longer to keep fighting over the “Federal funds rate,” but to take a side route: use shadow QE to suppress mortgage payments, use credit card price caps to lower bills, and use investigations plus term boundary tests to put pressure on people—ultimately achieving functional control of monetary policy.

Why Now: Political Survival Is Fundamental, Economic Narrative Is Just a Tool

2026 is a U.S. midterm election year. For most presidents, the midterms determine whether the “last two years will be easy”; for Trump, it’s more like a matter of “life or death.”

Trump recently warned in plain language at a party speech: if the Republicans lose Congress, “they’ll impeach me.”

This statement may not be a legal prediction, but it accurately describes the political consequences: once Congress switches hands, investigations, subpoenas, and hearings will flood forth, and the White House agenda will be dragged into endless warfare.

Meanwhile, pressure on approval ratings is real. Multiple media outlets cite Reuters/Ipsos polls showing Trump’s approval rating hovering around 40%.

Ballot pressure + Congressional risk determines that the White House’s priority this year won’t be “writing a perfect macro policy report,” but “making voters feel life is getting better.”

Thus, the economic narrative narrows down to one word: affordability.

But in elections, affordability isn’t a macro-academic concept—it’s two bills:

Monthly mortgage: Whether you can buy a house, whether you can move—at heart, it’s whether you can handle the monthly payment.
Credit card APR: When bills pile up, APR isn't a financial term, it’s a stress factor of life.

These are far more intuitive than the “Federal funds rate.” Voters don’t look at dot plots; they look at the bills.

So, when the Fed is unwilling to cut rates quickly to match the political rhythm, the White House’s next step is clear: if you can’t change the “policy rate,” change the “interest rate endpoint that voters perceive.”

Frontline One: Move People—Not to Replace Anyone, But to Make “Insisting on Independence” More Costly

The easiest misunderstanding among outsiders is to think the White House’s goal is simply to oust Powell.

The more realistic goal may be: to make all central bank officials aware—being noncompliant brings more trouble.

Why did Powell respond unusually hard this time?

Because this time it’s not just “the president insulting you on social media,” but “the judicial system sending you a subpoena.”

His statement contains three key details:

Timing: He clearly says the Justice Department delivered the grand jury subpoena on “Friday.”
Direction: He directly links the “threat of criminal charges” to “the Fed setting rates based on evidence,” meaning—you’re punishing the Fed for not cutting rates per the president’s preferences.
Qualitative judgment: He calls the renovation and hearing mere “excuses,” and places these actions in the context of “persistent pressure.”

Together, these statements amount to publicly declaring: central bank independence is no longer academic debate, but a real-world conflict.

You could understand this as a “system thermometer”—when the central bank chair starts openly discussing “threats,” the temperature is up.

The Lisa Cook Case: More Like a “Boundary Test” at the Supreme Court

Meanwhile, another clear signal is surfacing: on January 21, 2026, the Supreme Court will hear oral arguments on the dispute over Trump’s attempt to dismiss Federal Reserve Governor Lisa Cook.

On the surface, the case is about whether a particular board member can be removed for cause; but at a deeper level: how “special” is the Fed, really? How far can the president’s hand reach?

If you look at Powell’s criminal investigation together with the Cook case, you’ll draw the same conclusion: the White House isn’t making isolated strikes, but is trying to reduce the certainty of “term protections.”

Once term protection is uncertain, policy becomes more “cautious”—not cautious about data, but about conflict.

This is the real effect of “moving people”: it might not change rates immediately, but it changes future bargaining posture.

Frontline Two: Move Markets—If You Can't Budge the Policy Rate, Go After “Monthly Payment” and “Bills”

If moving people is to make the driver less likely to resist, moving markets is “directly tweaking the transmission system.”

The White House’s recent two moves both bypass the federal funds rate, going straight for voters’ pain points:

(1) Mortgage: $200 billion “shadow QE,” aimed at lowering mortgage costs

Trump instructed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS) to lower home borrowing costs; Treasury Secretary Besant put it plainly: this purchasing plan is intended to roughly offset the Fed’s monthly $15 billion MBS reduction pace.

In plain speak:

The Fed is shrinking its balance sheet, MBS demand gap boosts mortgage rate spreads; so the government finds a “quasi-official buyer” to fill the gap, narrowing spreads and lowering mortgage rates.

This doesn’t require the Fed to cut rates immediately or change the law. All it takes is—deploying the “two housing agencies” already in hand.

Politically, this move has high payoff:

Technically, it’s a “market transaction,” so it’s less glaring than an executive order;
Result-wise, it hits the voters’ most sensitive point: monthly payments.

It’s not the Fed’s QE, but it accomplishes part of QE’s function: using public power to influence financial conditions.

(2) Credit Cards: 10% rate cap for a year, turning APR into a campaign slogan

The other move is even more direct: Trump has called for a one-year “credit card interest rate cap of 10%” starting January 20, 2026.

What makes this move so viral? Because credit card rates are the “easiest rates to fuel anger.”

Media widely report that U.S. average credit card rates fluctuate between 19%—21%.
Against this background, a “10% cap” feels like slicing pain in half—you don’t need to understand finance to have an emotional reaction: Why’s it so expensive?

Whether it can be implemented and how—that’s the next question; for the White House, the first value is already captured: shifting “high rates anger” from the Fed onto credit card companies, and redefining “rate cuts” from policy rates to bill rates.

This is the core logic of moving markets:

If you won’t cooperate by lowering policy rates, I’ll tackle endpoint rates so voters see “I’m lowering costs.”

Combine Both Fronts: This Is What “Functional Takeover” Looks Like

Here, you see that “functional takeover” isn’t so mysterious:

Move people: make central bank officials pay higher political/legal costs for insisting on independence;
Move markets: don’t change the source policy rate, but use Fannie/Freddie buying MBS + credit card price caps to impact interest rate endpoints that voters care about.

The combination creates a real-world effect:

Even if the Fed lags, the White House can still act on “the rates most sensitive to voters,” creating a tangible sense of declining costs.

For the midterms, this is an extremely enticing tool.

The problem: once it proves effective politically, it’ll be repeated.

The first time you call it “an exception”;

The second time: “It’s an election year”;

The third time, the market will simply assume: politics can intervene in pricing.

Once that assumption sets in, financial markets will respond as they always do—by pricing this uncertainty in.

The Real Risk: Short-Term Cost Cuts Are Appealing, But “Binary Boundaries” Being Breached Is More Frightening

Let’s be blunt: cutting costs is not wrong.

Ordinary people want lower payments and bills; this is perfectly legitimate.

The real danger isn’t “how much was cut,” but “how it was cut.”

When the government uses administrative means to define what interest rates are “reasonable,” the long-term problems aren’t usually moral, but systemic:

The market starts worrying: next time there’s political pressure, will another rate get “target pricing”?
Institutions begin to fret: will pricing rules change with every political cycle?
Investors worry: are the boundaries between law, regulation, and central banking still stable?

These worries won’t start a crisis overnight, but will quietly push up one thing: the risk premium.

In plain talk: because rules are uncertain, everyone wants higher returns as compensation.

So you get a familiar paradox:

You use administrative power to push rates down in one area, but the system might charge back elsewhere—with higher volatility, higher long-term capital costs, or frailer market sentiment.

This is also why Powell responded with rare forcefulness: he isn’t fighting for personal innocence, but for a boundary.

Cutting Costs May Be a Political Win, But “Pricing Power Migration” Is the Institutional Price

Let’s wrap up the story.

This White House playbook—shadow QE to push down mortgages, credit card rate caps to push down bills, judicial and term boundary tests to pressure officials—points to one goal: improve voter perception of “living costs” before the midterms, as fast as possible.

The motivation isn’t hard to understand, and might even work in the short term.

But what really demands caution isn’t falling rates, but the migration of “pricing power”:

As more rates are defined by political needs as “reasonable,” the market starts to price in growing “political uncertainty.” The cheap deal you get today may come back for payment in other forms—greater volatility, higher risk premiums, weaker rule expectations.

So, Powell’s “stand firm” isn’t just a message for the Justice Department, or Trump; it’s for all observers:

If even a central bank chair must choose between “setting rates” and “bearing risk,” then this isn’t a personal plight, but an inflection point for an entire system.

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