Featured Analysis｜Why a Trump Who Cannot Afford to Lose the Midterms Must Take Control of the Fed

The two Federal Reserve buildings in Washington have been renovated at a cost high enough to put the Fed Chair on the front page under the headline “criminal investigation.”

Over the past year, the story of the Fed’s headquarters renovation has been reported like a luxury home inspection: the budget kept rising, details were scrutinized repeatedly, and during congressional hearings, Powell was pressed on “what exactly was built.” Stories like this are not unusual in Washington: government projects, cost overruns, political back-and-forth—it’s a familiar process.

It wasn’t until a “subpoena” arrived that the plot suddenly shifted from audit reports to political thriller.

According to Reuters and other media outlets, the Department of Justice delivered a grand jury subpoena to the Fed, using Powell’s June testimony before the Senate Banking Committee as a pretext to launch a criminal investigation. The central issue: whether he misled Congress regarding the cost and scale of the renovation project.

What makes it even more dramatic is that Powell didn’t “lock away his emotions” as he usually does.

He issued a statement on the Fed’s official website (with video) in which he opened by noting that the DOJ had delivered a subpoena on Friday, threatening criminal charges. He then escalated his language: the renovation and hearings were merely a “pretext,” the real issue being that someone wanted to pressure the Fed to set interest rates according to political preferences. He ended with a line that sounded directed at all officials: public service sometimes requires “standing your ground.”

Fed Chairs rarely put the words “political threat” on the record. Once they do, it signals that the tacit understanding—“everyone acts as if they are independent”—is fraying.

This also explains why the market’s first reaction wasn’t to debate the renovation costs, but to seek a safety cushion: the news caused the dollar to weaken, gold to rise, and equity futures to fall.

If you treat this as merely “Powell’s personal problem,” you miss the bigger story:

When the Fed doesn’t comply, the White House’s strategy is no longer about continuing to influence the federal funds rate. Instead, it moves through side channels: using shadow QE to push down mortgage rates, capping credit card APRs to lower bills, and applying subpoenas and term-boundary tests to exert pressure—all aimed at effectively taking 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, midterms determine how smooth the last two years of the term will be; for Trump, they are more like a matter of “life or death.”

Recently, Trump warned within the party: if Republicans lose Congress, “they will impeach me.”

This is not necessarily a legal forecast, but it accurately describes the political consequence: if Congress flips, investigations, subpoenas, and hearings will open like a faucet, and the White House agenda will be dragged into an endless attrition battle.

At the same time, there is objective pressure from approval ratings. Multiple media outlets, citing Reuters/Ipsos polling, report Trump’s approval hovering around 40%.

Vote pressure plus Congress risk determines that the White House’s priority this year will not be “drafting a perfect macroeconomic report,” but “making voters feel that life is more affordable.”

Hence, the economic narrative converges on a single word: affordability.

But affordability in elections is not a macroeconomic academic concept—it’s about two bills:

Mortgage payments: Whether a person can afford to buy or refinance, it all comes down to monthly payments.

Credit card APRs: When bills accumulate, APR is not a financial term; it’s life pressure.

These two are far more tangible than the federal funds rate. Voters don’t look at dot plots; they look at their bills.

So when the Fed refuses to cut rates at a political pace, the White House’s next move is natural: if you can’t change the “policy rate,” then alter the “perceived rate” that voters actually experience.

Frontline 1: Pressure the officials—not necessarily to remove anyone, but to make independence costly

The most common misinterpretation is to think the White House’s goal is to oust Powell.

The more realistic goal: make all central bank officials understand—noncompliance comes with higher costs.

Why did Powell respond unusually firmly this time?

Because this is not “a president criticizing you on social media,” but “the judicial system delivering a subpoena.”

Three key details stand out in his statement:

Timing: He explicitly said the DOJ delivered the grand jury subpoena on Friday.

Targeting: He linked the “criminal charge threat” directly to the Fed setting rates based on evidence—meaning, they are punishing the Fed for not cutting rates according to the president’s preference.

Characterization: He said the renovation and hearings were merely a “pretext,” framing these actions as part of “continuous pressure.”

Together, these lines effectively declare externally: central bank independence is no longer just an academic concept—it’s a real conflict.

You can think of this as a “temperature gauge” for the system—when the Fed Chair openly talks about “threats,” the temperature has risen.

The Lisa Cook case: testing boundaries at the Supreme Court

At the same time, another signal is clear: the Supreme Court will hold oral arguments on January 21, 2026, regarding Trump’s attempt to remove Fed Board Governor Lisa Cook.

On the surface, the case is about “whether a governor can be removed for cause,” but deeper, it’s about: how special is the Fed? How far can presidential influence extend?

Putting Powell’s criminal investigation and the Cook case together, the conclusion is the same: the White House is not conducting isolated attacks, but reducing the certainty of term protections.

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

This is the real effect of “pressuring officials”: it may not immediately change rates, but it changes the future strategic posture.

Frontline 2: Influence markets—can’t move policy rates, so move “mortgages and bills”

If “pressuring officials” is to make the driver hesitant, “influencing markets” goes straight to the transmission system.

The White House has recently deployed two measures, bypassing the federal funds rate to target voters’ pain points:

Mortgages: $200 billion “shadow QE” to push mortgage rates down

Trump instructed Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities (MBS) to lower housing borrowing costs. Treasury Secretary Benson stated this is intended to roughly offset the Fed’s monthly MBS reduction of about $15 billion.

Translated simply: the Fed is shrinking its balance sheet, which would raise mortgage spreads; so the White House finds a “quasi-official buyer” to fill the gap, narrowing spreads and lowering mortgage rates.

Politically, this is efficient:

Technically, it’s a “market transaction,” not an obvious executive order;

Effectively, it hits the voter’s most sensitive metric: monthly mortgage payments.

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

Credit cards: 10% APR cap for one year turns into a campaign message

Another move is even more direct: Trump calls for a one-year credit card rate cap of 10% starting January 20, 2026.

Why is this messaging powerful? Because credit card APRs are the “rate most easily perceived as painful.”

Average U.S. credit card rates hover around 19–21%. A 10% cap feels like cutting the pain in half—anyone can understand it immediately.

Whether this can be implemented, and how, is secondary; the primary political effect is achieved: moving “high-rate anger” from the Fed to credit card companies, reframing “rate cuts” as lower bills.

This is the core logic of influencing markets:

You won’t cut policy rates? I’ll adjust the end-user rates so voters feel the relief.

Putting both frontlines together: This is what a “functional takeover” looks like

Now it becomes clear: the so-called “functional takeover” is not mysterious:

Pressuring officials: makes central bank staff pay higher political/legal costs for independence;

Influencing markets: doesn’t change the policy rate source, but uses shadow QE + credit card caps to affect the “end-user” rate.

Combined, the real effect is:

Even if the Fed is slow to act, the White House can still impact the interest rates voters care about, creating the perception of lower costs.

For midterm elections, this is a highly attractive tool.

Once politically effective, it will be replicated.

The first time, you say: “It’s exceptional.”

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

The third time, the market starts to assume: politics can influence pricing.

The real risk: Short-term cost relief is tempting, but opening “rate-setting boundaries” is more dangerous

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

Ordinary people want lower mortgage payments and bills—that’s legitimate.

The danger is not “how much is lowered,” but “how it is lowered.”

When the government starts defining “reasonable ranges” for rates through administrative measures, the long-term issues are typically systemic rather than moral:

Will other rates be politically targeted next time?

Will pricing rules follow political cycles?

Will investors question the stability of legal, regulatory, and central bank boundaries?

These concerns may not trigger an immediate crisis but quietly raise one thing: the risk premium.

In plain language: because rules are uncertain, everyone demands higher returns as compensation.

A common paradox arises:

You suppress rates at one point using administrative power; the system may exact the cost elsewhere—with higher volatility, higher long-term funding costs, or more fragile market sentiment.

This is why Powell responded so strongly: he is not defending his personal innocence, but a boundary.

Cost relief may be a political win, but “rate-setting authority transfer” is the institutional cost

To conclude: the White House actions—shadow QE to influence mortgages, credit card caps to lower bills, subpoenas and term boundary tests to pressure officials—all point to one goal: quickly improve voters’ perception of “cost of living” before the midterms.

The motivation is easy to understand and may be effective in the short term.

The real issue is not rate cuts themselves, but the transfer of rate-setting authority:

As rates are increasingly defined by political needs, markets will price in “political uncertainty.”
The short-term relief you get today may be paid back in another form later—with higher volatility, higher risk premiums, and more fragile rule expectations.

Powell’s statement “stand your ground” is not just directed at the DOJ or Trump—it’s a signal to all observers:

If even a central bank chair must choose between “setting rates” and “taking risk,” this is no longer an individual predicament—it’s a structural turning point.