US stocks fell on Monday after the Department of Justice opened a criminal investigation into Federal Reserve Chair Jerome Powell, marking a sharp escalation in President Donald Trump’s long-running effort to pressure the central bank.
The Dow Jones Industrial Average fell 388 points, or 0.8%. The S&P 500 slipped 0.3%, while the Nasdaq Composite also traded lower, as investors reacted to the unusual development and reassessed political risks at a time when markets are hovering near record highs.
Bank stocks slide as policy uncertainty grows
Financial stocks led losses early in the session, reflecting concerns over both regulatory risk and the broader policy backdrop.
Shares of Citigroup fell about 3%, while JPMorgan Chase and Bank of America declined more than 1%. Capital One slid roughly 6%.
Adding to the unease, Trump’s renewed call to cap credit card interest rates at 10% for one year weighed on banking shares.
Critics argue the proposal, intended to improve affordability, could restrict lending and hurt bank profitability, potentially reducing access to credit for consumers.
Powell confirms investigation, pushes back
Powell confirmed in an unusual direct video statement Sunday evening that federal prosecutors have opened a criminal investigation related to his testimony before the Senate Banking Committee regarding the renovation of Federal Reserve office buildings.
In his remarks, Powell framed the probe as an attempt to undermine the independence of the central bank and said he would not yield to political pressure. His current term as Fed chair expires in May.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead, monetary policy will be directed by political pressure or intimidation,” Powell said in the statement.
The investigation has intensified an already fraught standoff between the White House and the central bank.
Trump has repeatedly criticised Powell for not cutting interest rates more aggressively, even as inflation stabilised and the Fed delivered three rate cuts in the latter part of 2025.
Fed independence under spotlight
The timing of the probe is particularly sensitive. The Federal Reserve is widely expected to pause further rate cuts at its upcoming meeting as policymakers assess how inflation and economic growth evolve early in the new year.
Trump has made clear he wants rates to fall further and is preparing to announce his preferred successor to Powell when the chair steps down in May, adding another layer of political pressure.
Market volatility ticked higher as the news broke. The Cboe Volatility Index, often referred to as Wall Street’s fear gauge, moved higher as traders added protection in the options market.
Earnings season and inflation data ahead
The market turbulence comes as investors turn their attention to the start of the fourth-quarter earnings season.
Major companies, including JPMorgan, Bank of America, Wells Fargo, Morgan Stanley, Delta Air Lines, Taiwan Semiconductor Manufacturing Company, and Goldman Sachs, are set to report results this week.
Those reports are expected to shed light on consumer spending, trading activity, and dealmaking, helping investors assess whether corporate fundamentals can support current equity valuations.
In addition, markets will digest fresh inflation data, with consumer price index figures due Tuesday and producer price index data on Wednesday.
If the reports show signs of easing price pressures, investors may once again price in additional rate cuts beyond the Federal Reserve’s current projection of one 25-basis-point reduction this year. Markets, however, are still betting on two cuts.
For now, the focus remains squarely on Washington. The clash over central bank independence has injected a new source of uncertainty into markets already grappling with lofty valuations and shifting policy expectations as the year unfolds.
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