US Inflation Holds at 2.7% as DoJ Probe of Powell Triggers Backlash

Bitcoin rose as much as 0.5% to 92,600 after the data release before reversing the gains. S&P Futures were flat at 6,977 on the day after the news. 

Inflation versus Employment

The inflation release will be closely watched by Federal Open Market Committee members and Fed officials as they weigh the competing risks of a softening labour market and persistent inflation, the two sides of the Fed’s dual mandate.

Federal Reserve Governor Stephen Miran, often regarded as the Trump administration's  voice on the committee, has continued  to push for further rate cuts. “I think it’s very difficult to argue that policy is about neutral. I think policy is clearly restrictive and holding the economy back,” Miran said last week. "I think that well over 100 basis points of cuts are going to be justified this year,” he added.

Meanwhile Richmond Fed President Tom Barkin noted last week that the current policy rate is “within the range of its estimates of neutral,” referring to the FOMC, aligning himself with Powell's comments after the rate decision in December. “Going forward, policy will require finely tuned judgments balancing progress on each side of our mandate,” Barkin added.

Minneapolis Federal Reserve President Neel Kashkari said in an interview with CNBC that "the inflation risk is one of persistence, that these tariff effects take multiple years to work their way through the system, whereas I do think there’s a risk that the unemployment rate could pop from here."

DoJ attack on the Fed and the blowback

Fed Chairman Jerome Powell confirmed on Sunday that the Department of Justice had served the Federal Reserve with subpoenas, a move that drew criticism from across the political spectrum and internationally.

Alan Greenspan, Ben Bernanke and Janet Yellen were among 13 former economic officials signing a statement condemning the inquiry into the Fed as an “unprecedented attempt to use prosecutorial attacks to undermine” its independence. “This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly. It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success,” their statement said.

The investigation also triggered growing backlash on Capitol Hill, including from Republican lawmakers. U.S. Republican Senator Thom Tillis, a member of the Senate Banking Committee that vets Federal Reserve nominees, said on Sunday that the move was a “huge mistake” and vowed to oppose any Trump appointments to the Fed - including a successor to Powell - until the legal issue is fully resolved. "We need this like we need a hole in the head," said Senator John Kennedy,  a Republican member of the banking committee.

The decision also drew a strong and united response from Powells’ international counterparts. Central bank governors from 11 institutions, including Christine Lagarde (European Central Bank), Andrew Bailey (Bank of England), Tiff Macklem (Bank of Canada) and Pablo Hernández de Cos (Bank for International Settlements) issued a statement supporting the Fed chief. “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell. The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve,” the statement read.

There were also reports that Treasury Secretary Scott Bessent was unhappy with the decision to investigate Powell and made his concerns known to the president.