Trump's Shaky Fed Takeover Effort Could Backfire

• The 10-year Treasury yield rose to 4.21% Monday morning as investors reacted to uncertainty over Fed independence and inflation implications, though Trump claimed no knowledge of the DOJ investigation
• Trump's attempt to fire Fed Governor Lisa Cook was blocked by courts, denying him the opportunity to gain majority control of the FOMC through appointments of regional Fed presidents
• Markets currently price in only 5% odds of a rate cut this month, with the next expected cut not until June 17 (69% probability), as all five voting regional Fed presidents indicate no rush to cut rates further

Summary: Trump's Fed Takeover Effort Could Backfire

Key Developments:

Federal Reserve Chairman Jerome Powell released a video Sunday night revealing the Department of Justice launched a criminal investigation into his congressional testimony regarding a Fed building renovation project, which Powell characterized as a "pretext" for controlling monetary policy. The 10-year Treasury yield rose to 4.21% Monday morning before easing to 4.19%, reflecting investor concerns about Fed independence and inflation implications.

President Trump denied knowledge of the DOJ investigation or grand jury subpoenas sent to the Fed on Friday. Three former Fed chairs—Alan Greenspan, Ben Bernanke, and Janet Yellen—issued statements supporting Powell, condemning the "prosecutorial attacks."

Legal Setbacks:

Trump's Fed takeover efforts have been thwarted in courts. His September attempt to fire Fed Governor Lisa Cook failed when a federal judge allowed her to continue serving. The Supreme Court scheduled oral arguments for January 21 but permitted Cook to remain in her post, preventing Trump from appointing new regional Fed presidents before their five-year terms began this month.

Current Fed Composition:

The FOMC includes seven Fed governors (three Trump appointees) plus five rotating regional presidents. Even with potential future appointments, Trump's ultra-dovish monetary policy preferences may lack majority support.

Market Implications:

Markets price in only 5% odds of a January rate cut, with the next expected cut in June (69% probability). The spread between three-month and 10-year Treasury yields reached 57 basis points—the highest since July 2022. The S&P 500 remained stable after hitting record highs last week, gaining 1.6%.

Powell's chairmanship ends in May, though his board term extends to February 2028.