Economist Tyler Cowen argues that the market's muted reaction to the DOJ's investigation of Jerome Powell is because the Fed's independence was already compromised. The nation's high debt and deficits create implicit pressure to eventually monetize the debt through inflation, a structural force more powerful than political rhetoric.

The market's calm reaction to threats against the Fed's independence is not disbelief, but a reflection that a "tipping point" hasn't been reached. As long as the board's composition is stable, markets remain subdued, but a sudden change could trigger a rapid and dramatic repricing of risk, similar to a bankruptcy.

With Fed Chair Jerome Powell's term ending, attacking him seems irrational. The strategy is likely a signal to intimidate his eventual successor and other committee members, establishing a precedent of White House pressure to ensure long-term institutional compliance on interest rates.

Uncertainty around the 2026 Fed Chair nomination is influencing markets now. The perceived higher likelihood of dovish candidates keeps long-term policy expectations soft, putting upward pressure on the yield curve's slope independent of immediate economic data.

Despite intense political criticism, a coalition including former Fed chairs, Treasury secretaries from both parties, and major bank CEOs has publicly defended the central bank's independence. This signals that markets view a non-politicized Fed as critical for economic stability, overriding political allegiances.

The investigation is a strategic move to remove Powell's long-term influence from the Board of Governors after his chairmanship ends, thereby eliminating a key voice of institutional stability and independence.

Despite the potential for personal financial gain from politically influenced rate cuts, the widespread public support for Fed Chair Jerome Powell during a DOJ investigation underscores a deeply held respect for central bank independence and data-driven policy.

The criminal indictment threat against Fed Chair Jerome Powell is not merely a dispute over central bank independence. It's a tactic to make an example of a high-profile official, signaling to all government employees the consequences of defying the administration and forcing out perceived opponents.

The Fed broke its usual silence to counter a DOJ probe it saw as politically motivated. Instead of a prolonged fight, President Trump quickly disavowed knowledge, leaving the situation in a strange limbo and making future actions from either side difficult to predict.