At stake is the Federal Reserve’s political independence — the institutional firewall that allows the central bank to hold rates high when necessary to contain inflation, even when doing so frustrates elected officials. Analysts warned Monday that a less independent Fed could reignite inflation over the longer term, even as short-term market moves suggested investors saw significant structural limits on the White House’s ability to reshape the central bank.
NEW YORK — U.S. stock indexes closed at records Monday even as financial markets absorbed the shock of a Justice Department subpoena targeting the Federal Reserve and a threat of criminal indictment against Fed Chair Jerome Powell — conduct Powell said was retaliation for the central bank’s decision to set interest rates independently of White House preferences.
The S&P 500 gained 0.2% to close at 6,977.27. The Dow Jones Industrial Average recovered an early loss of nearly 500 points to add 86 points and close at 49,590.20. The Nasdaq composite gained 0.3% to 23,733.9.
Markets shook off early losses as investors weighed the likelihood that Congress and the Fed’s own structure could limit the White House’s ability to reshape the central bank. Signs of unease remained, however: gold rose 2.5% to a record settlement of $4,614.70 per ounce, and the U.S. dollar slipped 0.4% against the euro and 0.6% against the Swiss franc.
Powell says legal threat is retaliation for rate independence
In a video statement released Sunday, Fed Chair Jerome Powell said the Justice Department subpoena and the threat of criminal charges over his testimony about building renovations at Fed headquarters are “pretexts” for a deeper conflict. He said the legal pressure is “a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”
White House press secretary Karoline Leavitt told reporters Monday that Trump did not direct the Justice Department to investigate Powell.
The Fed has been in a sustained dispute with Trump, who has called loudly for lower interest rates to reduce borrowing costs for households and businesses. The Fed lowered its main interest rate three times last year and has signaled additional cuts may follow this year, but moved deliberately enough that Trump has referred to Powell as “Too Late.” Trump is also attempting to remove Fed Gov. Lisa Cook, though the Fed’s rate-setting committee has continued to act independently.
The Fed has traditionally operated with insulation from political directives. That insulation allows the central bank to hold rates high when necessary to contain inflation, even when doing so frustrates elected officials seeking a faster-growing economy.
In the bond market, the 10-year Treasury yield briefly rose to 4.21% amid concerns that a less independent Fed could allow inflation to climb over the longer term before easing back to 4.18%.
Congressional confirmation power limits White House reach
Investors found reassurance in the prospect that Congress could check the administration’s path, according to analysts.
Thierry Wizman, a strategist at Macquarie Group, said traders could see “a limitation to the White House’s success in getting its way” because Congress holds the power to deny confirmation of White House nominees to the Fed.
Sen. Thom Tillis, a Republican from North Carolina, made that constraint explicit. “It is now the independence and credibility of the Department of Justice that are in question,” Tillis said on social media. “I will oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.”
Powell’s term as Fed chair ends in May, but Brian Jacobsen, chief economist at Annex Wealth Management, said the political pressure could lead Powell to remain at the institution beyond that date. “With the political pressure on the Fed, he may choose to stay on as a governor out of spite,” Jacobsen said. “It would deprive President Trump of the ability to stack the board with another appointee.”
Credit card stocks fall on Trump rate-cap threat
A separate move by Trump against the financial industry rattled credit card issuers. After Trump said he wanted to put a 10% cap on credit card interest rates for a year, Synchrony Financial fell 8.4%, Capital One Financial sank 6.4%, and American Express dropped 4.3%.
Walmart and Alphabet offset broader losses
Walmart climbed 3% after its stock was confirmed to join the widely followed Nasdaq 100 index. Google also announced Sunday that it was expanding shopping features in its AI chatbot through partnerships with Walmart and other major retailers.
Alphabet, Google’s parent company, rose 1%, lifting its total market value above $4 trillion following a sustained run driven by its artificial-intelligence offerings. Those gains helped offset declines across a slight majority of S&P 500 stocks.
Retailers stumble; overseas markets diverge
Abercrombie & Fitch dropped 17.7% after the retailer forecast profit for the final quarter of 2025 whose midpoint fell short of analyst expectations, alongside revenue growth guidance that also missed Wall Street projections. Urban Outfitters fell 12.3% and American Eagle Outfitters lost 3.5%.
Overseas, stock indexes were mixed across Europe after a stronger showing in Asia. Stocks gained 1.4% in Hong Kong and 1.1% in Shanghai following reports that Chinese leaders were preparing additional economic stimulus measures.