Fed’s silence on independence raises market jitters as Powell holds the line

Given the host of debates currently swirling around the U.S. Federal Reserve, Chair Jerome Powell’s press conference stood out for being notably restrained, even as the central bank held interest rates steady as widely expected.

Powell addressed routine questions on jobs, inflation and the broader economic outlook, signalling that policymakers remain in a pause phase after an aggressive tightening cycle. But according to a Reuters analysis, what drew the most attention was Powell’s refusal to engage on politically sensitive issues surrounding the Fed’s independence.

The central bank chief repeatedly declined to comment on matters related to his future after his term as chair ends in May and on mounting political pressures facing the institution. The subdued exchange underscored growing concerns among investors that political interference could weaken confidence in the Fed’s ability to operate free from partisan influence.


News agency Reuters noted that these concerns are no longer theoretical. Markets are already reflecting anxiety over the Fed’s independence, with pressure on the dollar, a revival of “Sell America” sentiment, rising long-term bond yields and a widening term premium on U.S. Treasuries toward multi-year highs.

The situation has been complicated by recent tensions involving the Trump administration, including threats of legal action against Powell and efforts targeting other Fed officials. While Powell reaffirmed his commitment to independent policymaking, legal and procedural constraints limited what he could say publicly, creating a communication gap on issues of significant consequence.

That silence, the Reuters analysis suggested, highlights how unusual and fragile the Fed’s current position has become.

Another rupture

At last week’s World Economic Forum in Davos, Canadian Prime Minister Mark Carney warned of a rupture in the global order driven by shifts in U.S. policy under President Donald Trump. Reuters noted that a similar rupture could be unfolding for the 113-year-old Federal Reserve.

Trump is expected to announce his choice to replace Powell soon. Despite assurances from administration officials, markets are likely to view the new Fed chair as closely aligned with the president, particularly given Trump’s repeated calls for lower interest rates.

According to the news agency, Powell advised his eventual successor to avoid becoming entangled in electoral politics and to rely on congressional oversight as the primary source of democratic accountability for the central bank.

Trump has said he will name his nominee by the end of January. With White House economic adviser Kevin Hassett no longer in contention, Reuters reported that the shortlist has narrowed to three candidates: Fed Governor Christopher Waller, former Fed Governor Kevin Warsh, and BlackRock bond fund chief Rick Rieder.

All three are seen as more supportive of rate cuts. Betting markets have recently favoured Rieder, though his lead has narrowed in recent days.

As the selection process unfolds, Reuters noted that investor focus is shifting beyond personalities to a broader concern: whether the Federal Reserve can preserve its independence in an increasingly politicised environment.

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