From "Overriding the Federal Reserve" to "Suing Powell" -- Trump, who "cannot afford to lose the midterms," decides to "take over the Federal Reserve"

The two buildings of the Federal Reserve are a bit expensive—expensive enough to put the central bank chairman on the headlines of "criminal investigation."

Over the past year, the story of the Federal Reserve's headquarters renovation has been written by the media like a luxury home inspection: the budget keeps rising, and the details are scrutinized repeatedly; during congressional hearings, Powell was also pressed on "what exactly the renovation looks like." Such matters are not uncommon in Washington: government projects, cost overruns, political mudslinging, a well-rehearsed process.

It wasn't until the "subpoena" appeared that the plot suddenly shifted from an audit report to a political thriller.

According to reports from Reuters and other media, the Department of Justice delivered a grand jury subpoena to the Federal Reserve and launched a criminal investigation into Powell based on his testimony before the Senate Banking Committee last June, with the core issue being: the cost overruns and scale of the renovation project, and whether he made misleading statements to Congress.

More dramatically, Powell did not "lock away his emotions" as he had in the past.

He issued a statement on the Federal Reserve's official website (accompanied by a public video), starting by pointing out: the Department of Justice delivered the subpoena on Friday, threatening to initiate criminal charges against him. He then made a strong statement: the renovation and the hearings were merely "excuses," and the real aim was—someone wants to use criminal pressure to force the Federal Reserve to set interest rates according to political preferences. The final remark sounded more like a message to all officials: public service sometimes requires "standing firm."

The Federal Reserve chairman rarely puts the words "political threat" on the table. Once he does, it signifies that the behind-the-scenes tacit agreement of "everyone pretending to do their job" is beginning to unravel.

This also explains why the market's first reaction was not to discuss "whether the renovation is worth it," but rather to seek a safety net: after the news broke, the dollar weakened, gold strengthened, and stock index futures fell.

If you treat this matter as "Powell's personal trouble," you will miss the larger storyline:

When the Federal Reserve does not cooperate, the White House's strategy is no longer to continue fighting for the "federal funds rate," but rather to take a sidestep: using shadow QE to pressure mortgage rates, using credit card limits to pressure bills, and then using investigations and term boundaries to test and pressure people, ultimately achieving a functional takeover of monetary policy.

Why Now: Political Survival is Fundamental, Economic Narrative is Just a Means

2026 is the year of the U.S. midterm elections. For most presidents, midterm elections determine "how the next two years will go"; for Trump, it feels more like a matter of "life and death."

Recently, Trump bluntly warned in a speech within the party: if the Republicans lose Congress, "they will impeach me."

This statement may not be a legal prediction, but it accurately describes the political consequences: once Congress changes hands, investigations, subpoenas, and hearings will be turned on like a faucet, dragging the White House agenda into an endless war of attrition.

At the same time, there is also objective pressure on approval ratings. Multiple media outlets have cited Reuters/Ipsos polls indicating that Trump's approval rating hovers around 40%.

The pressure of votes + the risk of Congress determines that the White House's priority this year will not be "to write a perfect macro policy report," but rather "to make voters feel life is better."

Thus, the economic narrative will converge on one word: affordability But affordability in elections is not a macroeconomic academic concept; it is two bills:

• Mortgage monthly payment: Whether one can afford to buy a house or change houses essentially comes down to whether the monthly payment can be sustained.
• Credit card APR: When bills pile up, APR is not a financial term; it is a life pressure.

These two are far more intuitive than the "federal funds rate." Voters do not look at dot plots; they look at bills.

Therefore, when the Federal Reserve is unwilling to quickly cut interest rates in line with political rhythms, the next step for the White House is quite natural: since we cannot change the "policy rate," let's change the "perceived interest rate endpoint" for voters.

First Front: Moving Hearts — Not to Replace Anyone, but to Make "Independence" More Expensive

One of the easiest misunderstandings from the outside is to think that the White House's goal is to get Powell removed.

A more realistic goal might be: to make all central bank officials understand one thing — disobedience will lead to more trouble.

Why is Powell unusually tough this time?

Because this time it is not "the president scolding you on social media," but "the judicial system serving you a subpoena."

In his statement, there are three key details:

1. Timing: He clearly stated that the Justice Department delivered the grand jury subpoena on "Friday."
2. Directionality: He directly linked the "threat of criminal charges" with "the Federal Reserve setting rates based on evidence," meaning — you are punishing the Federal Reserve for not cutting rates according to the president's preferences.
3. Qualitative: He said that the revisions and hearings are merely "excuses," and placed such actions in the context of "ongoing pressure."

Taken together, these statements announce to the outside world: central bank independence is no longer just an academic discussion but a real conflict.

You can understand it as a kind of "institutional thermometer" — when the central bank chairman starts publicly talking about "threats," it indicates that the temperature has risen.

Lisa Cook Case: More Like "Testing Boundaries" in the Supreme Court.

At the same time, another signal is also very clear: the Supreme Court will hold oral arguments on January 21, 2026, regarding the controversy over Trump's attempt to remove Federal Reserve Governor Lisa Cook from office.

On the surface, this case is about "whether a certain governor can be removed for cause," but at a deeper level: how "special" is the Federal Reserve? How far can the president's reach extend?

Looking at Powell's criminal investigation alongside the Cook case, you will arrive at the same conclusion: the White House is not conducting a targeted strike but is reducing the certainty of "term protection."

Once term protection becomes uncertain, policies will become more "cautious" — not cautious about data, but cautious about conflict.

This is the true effect of "moving hearts": it may not change interest rates on the same day, but it will change the posture of future negotiations.

Second Front: Moving Markets — If You Can't Adjust the Policy Rate, Then Adjust "Monthly Payments" and "Bills"

If moving hearts is about "making the driver hesitant to confront," moving markets is about "directly changing the transmission system."

The White House's recent two moves are both bypassing the federal funds rate and directly targeting voters' pain points: (1) Mortgage: $200 billion "shadow QE," aimed at lowering mortgage costs

Trump instructed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS) to lower housing borrowing costs; Treasury Secretary Basant's statement was even more straightforward: this purchasing plan is intended to roughly offset the Federal Reserve's monthly reduction pace of about $15 billion in MBS.

In plain Mandarin, this means:

The Federal Reserve is shrinking its balance sheet, and the demand gap for MBS will raise mortgage spreads; so I will find a "quasi-official buyer" to fill the gap, allowing spreads to narrow and mortgage rates to decline.

It does not require the Federal Reserve to immediately cut interest rates, nor does it need to change the law. It only needs to utilize the existing policy tool of "the two housing giants."

You will find that this move is politically very cost-effective:

• Technically, it is a "market transaction," not as glaring as an executive order;
• In terms of results, it is most sensitive to voters: monthly payments.

It is not the Federal Reserve's QE, but it performs part of the QE function: using public power to influence financial conditions.

(2) Credit Cards: A 10% annual cap, turning APR into a campaign slogan

Another move is more direct: Trump calls for a one-year "10% cap on credit card interest rates" starting January 20, 2026.

Why is this move so impactful? Because credit card interest rates are "the rates most easily grasped by anger."

The commonly cited data by the media indicates that the average credit card interest rate in the U.S. fluctuates around 19%-21%.

In this context, a "10% cap" sounds like cutting the pain in half—you don’t need to understand finance to immediately feel the emotional judgment: why is it so expensive?

As for whether it can be implemented and how it will be implemented, that is a secondary issue; for the White House, the primary value has already been achieved: shifting the "anger over high rates" from the Federal Reserve to credit card companies, redefining "interest rate cuts" from policy rates to billing rates.

This is the core logic of moving the market:

If you do not cooperate in lowering policy rates, I will start from the terminal rates, allowing voters to see "I am lowering costs."

Combining the Two Fronts: This is what "functional takeover" looks like

At this point, you will find that the so-called "functional takeover" is not mysterious:

• Moving: Making central bank officials pay a higher political/legal cost while insisting on independence;
• Moving the market: Not changing the source of policy rates, but using "the two housing giants buying MBS + credit card price caps" to influence the terminal rates on the voter side.

The combination of both will produce a tangible effect:

Even if the Federal Reserve is slow to react, the White House can take action on "the rates most sensitive to voters," creating a sense of cost reduction.

This is an extremely tempting tool for the midterm elections.

The problem is: once it proves politically effective, it will be replicated.

The first time you will say "this is an exception";

The second time you will say "this is an election year";

The third time the market will begin to assume: politics can intervene in pricing Once a default is formed, the financial market will respond in the way it knows best—by writing this uncertainty into prices.

The Real Risk: Short-term cost reduction is appealing, but "opening the boundaries" is more frightening

Here, we need to be more straightforward: reducing costs is not inherently wrong.

Ordinary people hope for lower monthly payments and reduced bills, which is a very legitimate demand.

But the real danger is not "how much it has been reduced," but "how it has been reduced."

When the government starts to use administrative means to define reasonable ranges for certain interest rates, the long-term problems it brings are usually not moral issues, but systemic issues:

• The market will start to worry: when the next political pressure comes, will other interest rates be "targeted"?
• Institutions will start to worry: will pricing rules change with the political cycle?
• Investors will start to worry: are the boundaries of laws, regulations, and central banks still stable?

These concerns may not immediately trigger a crisis, but they will quietly raise one thing: risk premium.

In simpler terms: because the rules have become uncertain, everyone demands higher returns as compensation.

So you will see a common paradox:

When you use administrative power to suppress interest rates at one point, the system may demand the cost back at another point—through higher volatility, higher long-term funding costs, or weaker market sentiment.

This is also why Powell has to respond in such a rare and tough manner: he is not fighting for personal innocence, but for a boundary.

Cost reduction may be a political victory, but "transfer of pricing power" is an institutional cost

Let's bring the story back.

The series of actions from the White House—shadow QE to suppress mortgage rates, credit card price caps to reduce bills, and testing the boundaries of justice and terms to suppress people—point to one goal: to improve voters' perception of "living costs" as quickly as possible before the midterm elections.

This motivation is not hard to understand and may even be effective in the short term.

But what is truly concerning is not the decrease in interest rates, but the "transfer of pricing power" of interest rates:

As interest rates are increasingly defined by political needs to determine "reasonable ranges," the market will increasingly factor "political uncertainty" into prices. The cheapness you obtain today at one point may be demanded back in another form in the future—through greater volatility, higher risk premiums, or weaker expectations of rules.

Therefore, Powell's statement of "standing firm" is not just directed at the Department of Justice or Trump, but more like a message to all observers:

If a central bank chairman has to choose between "setting interest rates" and "taking risks," then this is no longer an individual's situation, but a turning point for an entire system.

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