Is the investigation into Powell causing internal strife? FHFA Director is accused of being the behind-the-scenes mastermind, Bessent warns of "creating chaos," and the White House states that Trump did not direct any actions

Reports on Monday, the 12th, Eastern Time, indicated that the U.S. Department of Justice's criminal investigation into Federal Reserve Chairman Jerome Powell has caused internal strife within the Trump administration.

Media sources revealed that U.S. Treasury Secretary Steven Mnuchin 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. Additionally, the media pointed out that "anti-Fed pioneer," Bill Pulte, the Director of the Federal Housing Finance Agency (FHFA), was a key figure in pushing the Justice Department's decision to subpoena Powell. Pulte himself denied this claim, stating he had no authority to intervene in the Justice Department's actions.

Although the media suggested that Trump authorized the investigation into Powell, the White House also denied this. White House Press Secretary Kayleigh McEnany stated on Monday that Trump did not instruct the Justice Department to investigate Powell but emphasized that as president, he has the right to criticize the Federal Reserve Chairman. She mentioned that Trump himself denied the matter on the same day.

Market concerns about political interference with the Federal Reserve quickly emerged. On Monday, the dollar fell, U.S. Treasury prices dropped, bond yields rose, and precious metals gold and silver surged, reaching historic highs during intraday trading.

Wall Street Journal mentioned that Powell denied any wrongdoing in a video statement on Sunday night, accusing the Trump administration of weaponizing the Justice Department, stating that the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on what is most beneficial for the public, rather than following the president's preferences.

The investigation has also faced criticism from some members of Congress. Thom Tillis, a key member of the Senate Banking Committee and Republican Senator from North Carolina, pledged to block any nomination actions for the next Federal Reserve Chairman, stating that the credibility of the Justice Department is in question.

Mnuchin and Trump Hold Urgent Call, Warn Investigation Disrupts Plans to Replace Powell

According to media reports on Monday, Mnuchin expressed his concerns clearly during a phone call with Trump on Sunday night. The media cited a knowledgeable source saying, "The Secretary is very unhappy, and he let the president know that."

Mnuchin's concerns are not limited to market reactions; he is also worried that the investigation could make Powell, who might have otherwise left office early, take a firmer stance. Powell's term as Federal Reserve Chairman is set to end in May 2026, and the administration had hoped he would leave earlier after Trump nominated a successor, but now Powell may not resign early. The media mentioned that another source indicated:

"He (Mnuchin) previously thought that after President Trump nominated a new Federal Reserve Chairman, Powell would leave. But that won't happen now. Now (Powell's) position is more firm. This really messed things up."

A spokesperson for the U.S. Treasury stated to the media that there is "no disagreement between Mnuchin and Trump. The sources in the report do not represent the Secretary's position." Sources told the media that Mnuchin did not question the necessity of investigating Powell nor defended him, but focused on the broader consequences

Pulte is accused of pushing for the subpoena decision

According to another report on Monday, multiple insiders revealed that Pulte was a key figure in pushing the Trump administration's decision to subpoena the Federal Reserve. This move has made some of Trump's allies uneasy, as they worry that legal actions against Powell could disrupt the bond market and discourage Powell from leaving the Federal Reserve after his term as chairman ends in May. Powell's term as a Federal Reserve governor can last until 2028, and he has not indicated whether he will step down as governor after his term as chairman expires.

Typically low-profile FHFA head Pulte has been an active force within the government, advocating for controversial housing policies and investigating whether Trump's opponents have engaged in mortgage fraud. Pulte previously submitted a criminal complaint against Federal Reserve governor Lisa Cook to the Department of Justice, which became the basis for Trump's push to have her fired. The Supreme Court is set to hear the Cook case later this month.

A senior government official stated that the decision to subpoena Powell came from the Department of Justice, not Pulte. Insiders said that the investigation is being handled by the U.S. Attorney's Office for the District of Columbia, with the investigation of Powell approved by U.S. Attorney Jeanine Pirro in Washington, D.C.

Also on Monday, Pulte declined to comment on the investigation during a media interview. He stated:

"The Department of Justice is not within my jurisdiction. This is beyond my authority. I know nothing about it, and I would suggest asking the Department of Justice."

Other media outlets mentioned that insiders said some of Trump's senior aides only learned about the subpoena when Powell received it late Friday night.

The media learned that Pulte is known within the Trump administration for overstepping his authority; he had pushed Trump to request the Department of Justice to bring criminal charges against former FBI Director James Comey and New York Attorney General Letitia James, but these cases have made no progress to date. Although Pulte had conflicts with Besant, sources said that Besant's dissatisfaction with the Powell investigation did not stem from previous disagreements.

Trump leaves suspense

On Sunday night, Trump told the media that he knew "nothing" about Powell being investigated, but he did not miss the opportunity to criticize Powell, stating, "He certainly is not good at managing the Federal Reserve, nor is he good at building buildings." The buildings he referred to are related to the renovation project of the Federal Reserve headquarters. Last week, Pirro initiated the investigation into Powell without notifying the Treasury Department, senior White House officials, or the supervising agency of the Department of Justice, nominally claiming that he may have misled Congress regarding the renovation costs at the Federal Reserve headquarters.

Some media pointed out that the above remarks indicate that Trump may not limit Pirro's investigation, but his cautious statements also show that he respects Besant's position. Sources from the media confirmed that Trump "only learned about the subpoena afterward," but also noted that Pirro would not "advance without receiving signals that he would support."

Reports mentioned that government officials suspect that the signal to investigate Powell was conveyed by Pulte during a meeting with Trump in Florida last week. Pulte flew to Palm Beach with Trump on Friday night; he is a member of the Mar-a-Lago Club, and when Trump is there over the weekend, he often frequents the estate and golf courses near Trump The spokesperson for the Department of Justice declined to comment on the investigation into Powell, while the aforementioned media mentioned that a government source stated that Pirro acted "on her own." Pirro's office has not responded to this matter.

Trump has indicated that he has decided on the next Federal Reserve Chair candidate, but has not publicly announced it. White House National Economic Council Director Kevin Hassett and former Federal Reserve Governor Kevin Warsh are popular candidates.

According to reports on Monday, Senate Banking Committee member and Republican Senator Tillis stated that he would oppose the confirmation of any Federal Reserve nominee until the legal issues surrounding Powell are fully resolved. Commentators believe that Tillis's opposition could slow down or prevent Trump's Federal Reserve nominee from receiving Senate confirmation, as presidential nominees for the Federal Reserve must be confirmed by the Senate.

Bond Managers Warn that Impact on Federal Reserve Independence Could Raise Interest Rates

Several large bond management firms have warned that the Trump administration's impact on the independence of the Federal Reserve could push up long-term Treasury yields, contrary to Trump's goal of lowering interest rates.

Gregory Peters, Co-Chief Investment Officer of PGIM Fixed Income, which manages approximately $900 billion in assets, stated: The market will be very uneasy about the Federal Reserve as a source of instability.

He compared the Justice Department's threat to prosecute Powell to a soccer player accidentally scoring a goal for the opposing team, saying: "This is completely unexpected, clearly a risk-averse signal, and another breakdown of institutional norms, with medium- to long-term implications."

PIMCO Chief Investment Officer Daniel Ivascyn stated that Monday's market reaction showed confidence that legal and political processes would be sufficient to keep the Federal Reserve free from government pressure, but the risks are evident. He noted: The market likes certainty, predictability, and key aspects of the Federal Reserve's responsibilities, especially the independence of interest rate policy.

Ivascyn said: "Any threat to the independence of monetary policy decision-making could lead to unintended consequences. Simply put, you may end up with higher interest rates."

George Catrambone, Head of Fixed Income for DWS Americas, pointed out: "The U.S. government does not want to push up long-term yields, and creating issues around Federal Reserve independence will do just that."