Who is the new chairman, indicting Powell, overthrowing the Federal Reserve? Will the various battles surrounding the Fed be settled next week?

The various struggles surrounding the Federal Reserve have finally reached their endgame moment.

With the criminal investigation into current Chair Jerome Powell triggering political backlash, and the Supreme Court set to hear a key case next Wednesday, the many battles for control around the Federal Reserve may all be settled next week.

Investigating Powell: Political Backlash and “Finding a Way Out”

The criminal investigation targeting Federal Reserve Chair Jerome Powell appears to be turning into a political backlash against the Trump administration.

Last weekend, U.S. prosecutors issued a subpoena to Powell regarding renovation expenses for the Federal Reserve building. On January 11, Powell made a rare and forceful statement, condemning the move as an excuse to undermine the central bank’s independence.

This counterattack resonated within the Republican Party and appears to have sent a clear signal to the White House: if the investigation does not end, the confirmation process for the next nominee for Fed Chair will face major obstacles.

Facing pressure, Trump’s core aides have begun trying to “find a way out.”

Last Friday, National Economic Council Director Kevin Hassett sought to downplay the situation on Fox Business Channel, calling it simply a “request for information,” and suggesting that once the information is submitted, the matter can be put to rest.

Treasury Secretary Scott Besant subsequently echoed this, implying that as soon as prosecutor Jeanine Pirro receives “satisfactory answers,” the matter can be settled.

The logic behind this change of attitude is obvious: Trump needs to maintain plausible deniability that he did not order the investigation, and a quiet settlement may be the best path forward, also benefiting the next Fed Chair—

After all, if the current administration can use judicial means to threaten Powell, future successors will also be under the same shadow at any moment.

Supreme Court: The “Cook Case” and the Fight for Fed Independence

Compared to the political games surrounding the investigation into Powell, the Supreme Court’s hearing next Wednesday on the case of Fed Governor Lisa Cook concerns the very survival of the Fed’s “independence.”

Last August, Trump attempted to dismiss Cook for alleged “mortgage fraud” (which Cook firmly denies), and Cook swiftly launched legal action to defend her right to serve.

The outcome of this case will also have an important impact on the Fed’s independence—if the Supreme Court rules that Trump has the right to fire Cook, it would mean the President can freely dismiss any Fed official.

Data show U.S. fourth-quarter GDP grew by 4.3%, while Trump has openly demanded that interest rates be cut “close to zero” and asked the Fed Board to cooperate.

Forcing rate cuts amid such robust economic data is, in the eyes of most economists, unjustified. If investors believe the Fed is no longer independently resisting inflation, bond yields could surge dramatically.

Currently, signals from the Supreme Court lean toward protecting Cook, but any shift in stance during Wednesday’s hearing could trigger violent market swings.

Who Will Steer the Fed: “Two Kevins” or Someone Else?

Meanwhile, the nomination for the next Fed Chair may also be decided next week.

Although the candidate list once included BlackRock executive Rick Rieder and current Governor Christopher Waller, both failed the “loyalty test” due to insufficient ties to Trump. The market generally expects the final choice to come down to the “Two Kevins”—Kevin Hassett and Kevin Warsh.

Current signs suggest that Hassett is nearly out of the running. Despite his extreme loyalty to Trump, last Friday Trump told Hassett bluntly:

“I actually want to keep you in this position (White House economic advisor).”

At present, it is highly likely that the Fed Chair position will go to former Fed Governor Kevin Warsh. For Wall Street, this may be good news.

Wall Street executives like Dimon generally believe that compared to Hassett, who finds it hard to shake off the “Trump mouthpiece” label, the market will respond more positively to Warsh. Warsh is seen as someone with professional competence and able to maintain a degree of independence—although Trump does not want to repeat the Powell episode by picking a Chair who seems weak but is actually tough.

Next Wednesday, Trump will deliver a major speech in Davos. Treasury Secretary Besant predicts a final decision may be announced before Trump departs or after his return.

Though Trump may still postpone the decision or even surprise everyone by picking another candidate, various signs indicate that the contest surrounding the center of global financial power is already decided.

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