Investigation into Powell sparks infighting? FHFA director accused of being behind the scenes, Bessente warns of "creating chaos," White House says Trump did not instruct the move.

Some reports on Monday, the 12th, Eastern Time, indicate that the U.S. Department of Justice's criminal investigation into Federal Reserve Chairman Jerome Powell has led to infighting within the Trump administration.

Media leaks claim that U.S. Treasury Secretary Bessent directly expressed dissatisfaction to President Trump on Sunday night, warning that the investigation “creates chaos,” could disrupt financial markets, and hinder plans to replace Powell. At the same time, media point to Bill Pulte, “a leading anti-Fed figure” and director of the Federal Housing Finance Agency (FHFA), as a key figure behind the Justice Department’s decision to subpoena Powell. Pulte himself denied this, stating he has no authority over the Justice Department’s actions.

Though media suggest Trump ordered the investigation into Powell, the White House likewise denies this. White House Press Secretary Levitt said Monday that Trump did not instruct the Justice Department to investigate Powell, but emphasized that, as president, he has the right to criticize the Fed chair. She mentioned that Trump himself denied the matter that day.

Concerns over political interference in the Fed immediately surfaced in the markets. On Monday, the dollar fell, U.S. Treasury prices declined, bond yields rose, and gold and silver prices surged, both reaching intraday record highs.

Wallstreetcn reported that Powell, in a Sunday night video statement (Eastern Time), denied any misconduct and accused the Trump administration of weaponizing the Justice Department, saying the threat of criminal charges was “the result of the Fed setting interest rates based on what’s best for the public, not the preferences of the president.”

The investigation has also drawn criticism from some lawmakers. Thom Tillis, a key member of the Senate Banking Committee and Republican Senator from North Carolina, pledged to block any nomination for the next Fed chair and said the Department of Justice’s credibility is in question.

Bessent and Trump emergency call: warning the investigation undermines succession plans for Powell

According to media reports on Monday, Bessent made it clear to Trump during a phone call Sunday night. The media cited a source familiar with the matter: “The (Treasury) Secretary was not happy, and he made that known to the President.”

Bessent’s concern isn't limited to market reactions; he also worries the investigation might cause Powell, who might have considered resigning early, to adopt a tougher stance. Powell's term as Fed chair ends in May 2026. The government had hoped that after Trump nominated his successor, Powell would leave sooner, but now Powell may not step down early. Another source mentioned:

“He (Bessent) previously thought that after the President nominated a new Fed chair, Powell would leave. But now that won’t happen. Now (Powell) is more determined. This has really messed things up.”

A Treasury spokesperson told the media there is “no disagreement between Bessent and Trump. The sources cited in the report do not represent the Secretary's position.” Sources added that Bessent did not question the necessity of investigating Powell nor defend him, focusing instead on broader consequences.

Pulte accused of pushing for subpoena decision

According to another report on Monday, several insiders revealed Pulte was pivotal in urging the Trump administration to subpoena the Fed. This move has unsettled some of Trump’s allies, who fear legal action against Powell could disrupt the bond market and discourage Powell from leaving the Fed when his chairmanship ends in May. Powell's term as a Fed governor lasts until 2028, and he hasn't indicated whether he’ll step down as governor after his chair term ends, as is customary.

Usually reserved, FHFA chief Pulte has been a proactive force inside the government, driving controversial housing policies and investigating alleged mortgage fraud by Trump’s opponents. Pulte previously filed a criminal complaint with the Justice Department against Fed Governor Lisa Cook, sparking Trump’s campaign to oust her. The Supreme Court is set to hear the Cook case later this month.

A senior government official said the decision to subpoena Powell came from the Justice Department, not Pulte. Insiders say the investigation is headed by the U.S. Attorney’s Office for the District of Columbia; federal prosecutor Jeanine Pirro in DC approved the inquiry into Powell.

Also on Monday, Pulte refused to comment on the investigation in an interview, stating:

“The Justice Department is outside my jurisdiction. This is beyond my authority. I know nothing about it; I recommend you ask the Justice Department.”

Other media outlets reported that some senior Trump aides only learned of the subpoena late Friday, after Powell received it.

The media learned that Pulte is notorious within the Trump administration for exceeding his authority, having previously pushed Trump to demand the Justice Department bring criminal charges against former FBI Director James Comey and New York Attorney General Letitia James, though those cases have gone nowhere. Though Pulte previously clashed with Bessent, sources say Bessent’s dissatisfaction over the Powell investigation is unrelated to their prior disputes.

Trump leaves his attitude ambiguous

On Sunday night, Trump told the media he knew “nothing” about the investigation into Powell, but didn’t miss an opportunity to criticize Powell, saying “he’s certainly not good at running the Fed, nor at building buildings.” He was referring to renovations of the Fed’s headquarters. Last week, Pirro launched the investigation into Powell without notifying Treasury, top White House staff, or Justice Department leadership, ostensibly due to possible misleading testimony to Congress over the Fed headquarters renovation costs.

Some media point out that these comments suggest Trump may not restrict Pirro's investigation, but his cautious remarks also show he respects Bessent’s position. Media sources confirm Trump “found out about the subpoena after the fact,” but also point out that Pirro would not advance the case “without signals Trump would support it.”

The report notes that government officials suspect the investigation into Powell was prompted by a signal covertly delivered by Pulte during a meeting with Trump in Florida last week. Pulte traveled to Palm Beach with Trump on Friday night; he is a member of the Mar-a-Lago club and regularly visits the estate and nearby golf courses when Trump is there for the weekend.

A Justice Department spokesperson declined to comment on the investigation into Powell, while sources in the aforementioned media indicated Pirro was “acting without authorization.” Pirro’s own office did not respond.

Trump has said he’s decided on the next Fed chair, but hasn't yet announced it. White House National Economic Council Director Kevin Hassett and former Fed Governor Kevin Warsh are top candidates.

According to Monday’s report, Senate Banking Committee member and Republican Senator Tillis said that until Powell’s legal issues are fully resolved, he will oppose the confirmation of any Fed nominee. Commentary notes that Tillis’s opposition could slow or block Senate confirmation of Trump’s choice for Fed chair, as nominees must be confirmed by the Senate.

Bond managers warn attack on Fed independence will raise interest rates

Many major bond management firms warn that the Trump administration's attack on Fed independence could push up long-term Treasury yields, running counter to Trump’s goal of lowering rates.

Gregory Peters, co-chief investment officer for PGIM Fixed Income, which manages $900 billion, said: “Markets will be very unsettled by the Fed as a source of instability.”

He likened the Justice Department’s threat to indict Powell to a soccer player accidentally scoring an own goal, saying: “This is completely unexpected, clearly a risk-off signal, another breakdown of institutional norms, with medium- and long-term impacts.”

PIMCO Chief Investment Officer Daniel Ivascyn said Monday’s market reaction showed some faith that legal and political processes can shield the Fed from government pressure, but the risks are clear. He said: The market likes certainty, predictability, and core aspects of the Fed’s job, especially the independence of rate policy.

Ivascyn said: “Anything that threatens the independence of monetary policy decision-making can lead to unintended consequences. Simply put, you may end up with higher rates.”

George Catrambone, head of Americas Fixed Income at DWS, noted: “The U.S. government doesn’t want to push long-term yields higher, but creating issues for the Fed’s independence does exactly that.”

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