We Just Watched Central Bank Independence Become a Partisan Weapon

The DOJ launched a criminal investigation into Jerome Powell on Sunday. By Monday afternoon, the S&P 500 was at an all-time high.

Let me walk you through what just happened, because the market's shrug is more important than the headline.

Federal prosecutors are now examining whether the Fed Chair misled Congress about a $2.5 billion headquarters renovation—a project that ballooned over budget like every federal construction project since the pyramids. The timing is no accident. Trump has been openly hostile to Powell for refusing to cut rates as aggressively as the White House demands. The investigation centers on testimony Powell gave in June about the renovation, but everyone in Washington knows this is a message: comply on rates, or face criminal exposure.

Powell himself said it out loud in a video statement Sunday night. He called it a "pretext"—the threat of prosecution is the real weapon here.

And yet. The market opened in the red Monday morning. By lunchtime, it was in the green. S&P 500 ended +0.16%. Dow hit a new high. Alphabet crossed $4 trillion in market cap (partly on AI shopping deals with Walmart and Shopify), and that was enough to stabilize the mega-cap tech crutch the entire rally depends on.

The financial press treated this as a sign of "resilience." I would call it something else: resignation.

The Buy-the-Dip Has Become a Structural Force

Here's what changed. In previous eras, a direct assault on the Federal Reserve's independence would have cratered markets. The independence premium—the belief that unelected technocrats set monetary policy free from political pressure—is foundational to how U.S. debt is priced. That premium is worth trillions of dollars in lower borrowing costs.

But Monday revealed something darker. Investors calculated that Powell's investigation doesn't matter as much as what it signals about future Fed policy. If the White House is willing to prosecute the Chair, future Chairs will get the message. Rate cuts are coming. Maybe not now, but coming.

In other words, the criminal probe is actually bullish for stocks—because it makes the market's core assumption credible: the Fed will eventually do what the administration wants.

This is the melt-up logic of 2026 condensed into a single day. The institutional safeguard that mattered most has been weaponized. But as long as monetary accommodation is guaranteed to arrive, why sell?

Retail investors hold cash at the 98th percentile historically. Institutional money has adopted "resilience" as a mantra. Every dip gets bought. Even a constitutional crisis gets a lunch-hour reversal.

What Gold Is Telling You

Gold doesn't have this luxury of optimistic rationalization. It can't tell itself a story about future rate cuts justifying today's prices.

Gold hit $4,616 per ounce, up nearly 2% on the day. Silver charged toward record highs near $84 per ounce. The miners—Newmont, Barrick Gold—surged 7%+.

Gold is pricing what the stock market refuses to: that when the Federal Reserve's independence becomes a target for prosecution, the currency it controls becomes a liability.

HSBC expects gold could hit $5,000 an ounce in the first half of 2026, citing safe-haven demand, a weaker dollar, and policy uncertainty. That's not a bull case. That's a fear trade dressed in technical language.

The dollar fell. Central banks are already accumulating gold as they de-dollarize. Fiscal deficits in the U.S. are exploding. Trump just called for $1.5 trillion in defense spending—a massive increase from the $901 billion Congress approved. Defense stocks jumped 2-4%. Northrop Grumman and Lockheed Martin are pricing in a spending spree that will need to be financed. By whom? China and Japan are rotating into real assets, not T-bills.

This is the unraveling trade. Equities go up because rate cuts are locked in. Gold goes up because the currency behind those stocks is being debauched. Both can be true. They have been true. But they can't be true forever.

Trump's Credit Card Gambit

On Monday, Trump called for a 10% interest rate cap on credit cards for one year. This matters because it's not about the Fed—it's a direct price control. Capital One, American Express, and JPMorgan all fell. The banks know what this means: margin compression now, populist precedent later.

The cap sounds generous (10% is still predatory by historical standards), but the mechanism is where the real story lives. If the White House can strong-arm the Fed on rates, freeze credit card prices, and soon enough—you'll see—push for controlled utility rates and "fair" pharmaceutical pricing, you're looking at an economy where the state sets the nominal returns on invested capital.

That's stagflation in a new costume. Asset prices stay high because the money supply never tightens. But real returns erode because the government picks winners and losers, and capital gets trapped in low-yield zombies.

The May Question

Powell's term as Chair expires in May 2026. Kevin Hassett, the National Economic Council Director, is Trump's preferred successor. Hassett is a competent economist with a populist lean—exactly the kind of person who could rationalize lower rates without looking like a complete capitulation.

But here's the knife's edge: if some Senate Republicans actually block the nominee until the "legal intimidation" of Powell is resolved, you get a leadership vacuum at the world's most powerful central bank right as inflation risks are resurfacing and the dollar is under pressure.

That's the black-swan scenario. Not a market crash—those are priced in. A Fed without a Chair, gold at $5,000+, and the global reserve currency coming unmoored.

The markets are betting it doesn't happen. The gold market is hedging for it anyway.

What Monday Actually Proved

The investigation into Powell proved that central bank independence is no longer a constitutional norm—it's a luxury good, available only as long as the administration's priorities align with the central bank's. Once they diverge, the legal system becomes a tool of coercion.

The market's recovery proved that investors have absorbed this reality and decided it's bullish. Low rates forever. The Fed put will hold. Don't fight the melt-up.

Gold's rally proved that some investors aren't convinced the government can print its way out of a legitimacy crisis indefinitely. That eventually, someone will ask: why hold dollars when they're managed by a central bank being prosecuted for doing its job?

We don't get a stable equilibrium where all of these things are true long-term. We get a pivot point. Probably in May. Maybe sooner if the geopolitical temperature keeps rising.

For now, buy the dip. Own some gold. Watch the Fed Chair's situation like it's the only thing that matters.

Because on Monday, we learned it might be.