In a sudden shift, Treasury Secretary Besant has reportedly conceded on the investigation into Powell. According to the latest U.S. media reports, during a private meeting, U.S. Treasury Secretary Besant agreed that the Senate Banking Committee, rather than the Department of Justice, should lead the investigation into Federal Reserve Chairman Powell. This move is aimed at persuading key members of the Senate Banking Committee to drop their opposition to the nomination of Kevin Warsh for Fed Chairman. Concurrently, the prospect of Federal Reserve interest rate cuts faces significant uncertainty. Influenced by stronger-than-expected employment data, traders have substantially reduced their bets on Fed rate cuts. However, Kevin Hassett, Director of the White House National Economic Council, stated that he believes the Fed still has ample room to cut rates. President Trump also reiterated that U.S. interest rates should be significantly lower. In the markets, the three major U.S. stock indices fell sharply overnight. At the close, the Nasdaq plummeted 2.03%, the S&P 500 dropped 1.57%, and the Dow Jones fell 1.34%. Financial stocks declined collectively, with
The controversy surrounding the investigation into Powell escalated on February 12 when U.S. financial media Semafor reported, citing sources, that Treasury Secretary Besant, during a closed-door meeting with Senate Republican lawmakers, agreed to transfer the investigative authority over Powell from the Justice Department to the Senate Banking Committee. The report suggested Besant's move is intended to secure Republican Senator Thom Tillis's agreement to cease his obstruction of Warsh's nomination for Fed Chairman. Tillis had previously stated clearly that he would block any Fed appointment votes unless the Justice Department dropped its investigation into Powell. This stance directly hindered the process of President Trump's nominated candidate, Warsh, succeeding Powell. Sources indicated that Besant's latest proposal is still in an "exploratory" phase, seeking a viable path to break the current deadlock. Whether this plan will gain Tillis's support remains unclear. Semafor quoted a Republican lawmaker stating that the only way to break the impasse is to address the issue head-on, and having the Senate Banking Committee take over the investigation might be more appropriate than the Justice Department. Besant emphasized the urgency of advancing the hearing process during the meeting. According to the lawmaker, Besant expressed a desire "to hold hearings as soon as possible so a new chairman can be in place promptly." The lawmaker also noted that if Trump wishes to expedite the process, "he will have to personally call the U.S. Attorney and directly request their withdrawal."
Previously, on January 9, the U.S. Department of Justice served a subpoena to the Federal Reserve, threatening criminal charges against Powell related to his June 2025 testimony before the Senate Banking Committee concerning the Fed office building renovation project. Powell subsequently issued a statement saying the federal prosecutor's allegations against him were a "pretext," stating bluntly that the investigation was because the Fed "did not follow the president's wishes" on setting interest rates. In response, Democrats on the Senate Banking Committee stated that the Trump administration's attempt to "control the Fed through criminal charges" is "dangerous and unprecedented," and that the committee "should not participate in this charade that could undermine democracy and confidence in financial markets." A recent Wall Street Journal editorial urged Trump, for his own political interests, to instruct the Justice Department to halt the investigation into Powell. If Powell ignores or challenges the subpoena, it could trigger a legal battle, potentially making it difficult for the Senate to proceed with Warsh's nomination review in the short term. This "political-judicial fight" could backfire.
The outlook for Fed rate cuts has cooled rapidly following the far stronger-than-expected U.S. January non-farm payrolls data. According to Polymarket betting data, the probability of the Fed not cutting rates in March jumped from 80% to 92%. Data from the Bureau of Labor Statistics showed U.S. non-farm payrolls increased by 130,000 in January, significantly exceeding market expectations. This somewhat alleviated concerns about a labor market slowdown and weakened expectations for rate cuts. According to the CME FedWatch Tool, traders currently anticipate the central bank will implement two rate cuts, in June and September respectively. On February 11, President Trump praised the latest January jobs data and used it to reiterate his view that U.S. interest rates should be substantially lower. Hassett also said in an interview, "I think the Fed still has plenty of room to cut rates." Hassett pointed out that due to Trump administration policies like encouraging early retirement, and previous actions by the now-defunct Government Efficiency agency, federal government employment has been reduced by 360,000 positions. This represents the lowest proportion of government workers in the labor force since 1966. This implies a reduction in government wage spending of $29 billion this year, which helps lower interest rates and balance the budget. He also stated that the latest jobs report shows concerns about AI negatively impacting employment are unfounded. Hassett expects strong U.S. economic performance ahead, with the booming AI sector capable of boosting productivity and economic growth. He suggested U.S. GDP growth could realistically reach 4-5% this year, while emphasizing that inflation data will be a key factor in Fed decisions.
David Einhorn, founder and president of hedge fund Greenlight Capital, predicts the Fed will cut rates far more times this year than the expected two. Einhorn stated that the market's interpretation of the latest jobs data as a reason not to cut rates is "wrong." In fact, he believes the extent of rate cuts could be greater, as he expects Trump's Fed Chair nominee, Kevin Warsh, could persuade the committee to implement significant rate reductions.