Trump-Fed Clash: Dollar Falls, Oil Rises, Stock Markets Mixed, Korean Won Plummets
The dollar fell as the Trump administration clashed with the US Federal Reserve, crude oil rose, and global stock markets rallied. The Korean Won plummeted amid expectations of further escalation.
The dollar fell and US stock futures fell after Federal Reserve Chairman Jerome Powell revealed that the Trump administration threatened him with criminal prosecution.
S&P 500 futures fell 0.5% in Asia on the morning of the 12th, while European futures fell 0.1%, as investor concerns about central bank independence grew. Reuters reported on the 12th, "The dollar fell about 0.2% against its peers, falling below 158 yen and hovering around $1.1660 per euro." Benchmark 10-year Treasury futures rose 3 ticks to implied a yield of 4.15%, about 1 basis point below the cash market's close on the 9th of last week, and Fed funds futures added about 3 basis points of further cuts this year, suggesting a small but likely more aggressive Fed action."
Reuters continued, "Gold hit a record high above $4,600 an ounce, and unrest in Iran boosted precious metals prices and supported oil. Traders described the news as unsettling, but the immediate impact on interest rates was unclear."
Federal Reserve Chairman Jerome Powell announced in a statement on Sunday the 11th that the Trump administration had threatened him with criminal prosecution and issued a grand jury subpoena for his testimony to Congress last summer regarding the Fed building renovation project.
He described the subpoena as a "pretext" to pressure the central bank to cut interest rates, signaling a potential clash with the Trump administration.
The New York Times reported that "the U.S. Attorney's Office in Washington, D.C., has opened a criminal investigation into the renovation of the central bank's Washington headquarters and whether Jerome Powell lied to Congress about the scope of the project, according to people familiar with the matter." The Times described the investigation as "an escalating feud" between Trump and Powell, adding that it "further intensifies the long-standing feud."
President Trump has consistently criticized Powell for resisting calls for a significant rate cut. Despite appointing Powell as Fed chair in 2017 during his first term, President Trump threatened to remove him and raised the possibility of a lawsuit, citing "incompetence" in the $2.5 billion renovation of the Fed building.
The investigation, which will include an analysis of Powell's public statements and a review of his spending records, was approved in November by Jeanine Pirro, a longtime Trump ally whom he appointed to lead the office last year, officials said.
Powell made the announcement via a rare video message on the Fed's website, warning that the investigation represents a broader battle over the Fed's independence.
The Fed chairman's statement stated, "The Department of Justice has served the Federal Reserve with a grand jury subpoena and threatened criminal prosecution in connection with my testimony before the Senate Banking Committee in June, which concerned, in part, the multiyear project to renovate the historic Federal Reserve office building."
The Fed continued, "We have committed to keeping Congress informed of this renovation project through testimony and other public materials." That's just a pretext. The threat of criminal charges stems from the fact that the Federal Reserve has set interest rates based on its assessment of what is best for the American people, rather than following the president's preferences," he said.
He continued, "No one—especially not the Federal Reserve Chairman—is above the law. But this unprecedented action must be viewed in the broader context of the administration's threats and persistent pressure." "The question is whether the Fed can continue to set interest rates based on evidence and economic conditions, or whether monetary policy will be dictated by political pressure or intimidation. (Omitted) I have served at the Federal Reserve under four administrations, both Republican and Democratic. In each instance, I have performed my duties without political fear or bias, focused solely on our mission of price stability and maximum employment. Public service must sometimes stand firm in the face of threats."
President Trump announced in an interview with The New York Times last week that he had chosen a successor to the Fed chairman. The New York Times reported, "A decision is expected to be announced soon, and Kevin A. Hassett, President Trump's top economic adviser, is a strong candidate for the position." They added, "While Powell's term as chairman expires in May, his term as Fed president runs until January 2028."
Chairman Powell's statement today suggests he plans to remain at the central bank beyond the end of his term as chairman.
The US Congress granted the Fed the authority to set interest rates without presidential interference, and Congress stipulated that the Fed's goals should be low inflation and a healthy labor market.
In contrast, South Korea has prioritized "economic growth" over the Bank of Korea and manipulated its "growth-first" approach to low inflation by excluding "homeownership costs," which account for about 30% of the US Consumer Price Index (CPI).
The office of Pirro, newly appointed by President Trump as Federal Reserve Bank Director and a key figure in the ongoing investigation, confirmed to the New York Times on condition of anonymity that prosecutors had repeatedly contacted Powell's staff, requesting documents related to the renovation project, a source familiar with the investigation confirmed to the Times, speaking on condition of anonymity, that the investigation was "open and ongoing."
When asked about the Fed investigation by NBC News, President Trump denied any knowledge of the investigation.
"I don't know anything about it, but he's not very good at the Fed, and he's not very good at building buildings," he told NBC.
Trump then clarified that the subpoena from the US Attorney's Office had nothing to do with interest rates.
"I wouldn't even consider doing that," he told NBC. "The only pressure he has is that the insurance premiums are too high. That's the only pressure he has."
The ruling Republican Party has also questioned the premise of the investigation. North Carolina Republican Senator Thom Tillis, a member of the Banking Committee, announced his opposition to the Fed nomination, including the upcoming vacancy for chairman, based on the subpoena reports.
"If there were any lingering doubts that advisers within the Trump administration were actively pushing to end the independence of the Federal Reserve, they should be gone now," he said in a statement. "The issue now lies with the independence and credibility of the Department of Justice."
Senator Elizabeth Warren of Massachusetts, the committee's top Democrat, said in a statement, "As Donald Trump prepares to nominate a new Fed chair, he is poised to completely remove Jerome Powell from the Fed Board and install another puppet to complete his corrupt control of America's central bank."
The prospect of a prosecutorial investigation highlights a broader conflict between the president and the Fed. The New York Times reported, “The attack also included an attempt to oust Fed President Lisa D. Cook, whom President Trump had previously attempted to fire for alleged mortgage fraud. The president can only remove Fed officials for ‘cause,’ which typically means misconduct or dereliction of duty. The Supreme Court is scheduled to hear arguments in the Cook ouster case on January 21.”
The headquarters renovation project, at the center of the prosecutors’ investigation into Chairman Powell, was scheduled to begin in 2022 and be completed in 2027.
The project is estimated to be over budget at approximately $700 million and includes expanding and modernizing the Mariner S. Eccles Building, built in the 1930s, and another building on Constitution Avenue. The Fed stated that the building had not undergone a "complete renovation" since its construction nearly 100 years ago, and that the renovations would include "removing asbestos and lead contamination and making the facility compliant with accessibility laws."
The 2021 Fed renovation proposal included "a dedicated elevator and cafeteria for key policymakers, a fountain, new marble features, and a rooftop terrace for employees." However, during a congressional hearing last June, Chairman Powell denied these features were "included in the latest proposal," suggesting a "lie investigation."
At the time, Chairman Powell stated, "There's no VIP dining room. There's no new marble. We've taken the old marble down, and we're going to rebuild it. We're going to use new marble where the old marble is broken. But there's no special elevator. We just have old elevators." He also stated that the project plan was "continuously evolving" and that some features initially included had been scrapped.
Following Chairman Powell's congressional testimony, the Federal Reserve posted a "Frequently Asked Questions" post on its website, reiterating the responses Powell gave to lawmakers.
The Fed's website then publicly explained the "cost overruns," citing additional factors such as material, equipment, and labor costs, unforeseen circumstances, higher-than-expected asbestos levels, and soil contamination.
The won-dollar exchange rate surged by more than 12 won during trading on the 12th, reaching 1,470 won.
Foreigners, particularly in the stock market, are increasing upward pressure on the exchange rate, and the increase has accelerated from the eight consecutive trading days of gains since December 24th of last year, when the government directly intervened in the exchange rate, causing a sharp rise in value in March.
Despite a lower economic growth rate than the United States, Korea's stock market has actually risen even faster. Even as the consumer price index reached 3%, exceeding the US inflation rate, the government concealed this increase and excluded "ownership costs," which were driven by rising rents through policies to expand the money supply, from the price index.
The Lee Jae-myung administration, with its slower economic growth than the US, has formalized a policy of lowering interest rates than the US, expanding fiscal deficits, and strengthening funds to maximize the money supply, thereby replenishing the dollar to the US.
This, coupled with the government's forced lowering of the consumer price index, the oversupply of the Korean Won, and the annual supply of US dollars to the United States, provides a suitable environment for foreign investor exchange rate speculation.
The Bank for International Settlements (BIS) announced on the 6th that Korea's nominal effective exchange rate (NEER, 2020 = 100) was 86.58, ranking fifth from the bottom among 64 major economies and the lowest since 84.78 on October 14, 2011, immediately following the Asian financial crisis.
The "nominal effective exchange rate" is a weighted average of trade volumes with 64 trading partners and serves as an indicator of the relative value of major currencies.
The UN projects global economic growth of 2.7% in 2026, with the US economy projected to grow 2.0% in 2026 and 2.2% in 2027. The South Korean economy is projected to grow 1.8% in 2026 and 2.0% in 2027.
The Bank of Korea's economic outlook report projects growth of 1.8% in 2026 and 1.9% in 2027.
South Korea's fiscal balance, an 8.1% increase from the previous year, is driving growth, reaching 728 trillion won. Household loan debt per capita stands at 97 million won. Inflation, excluding housing costs, is projected to be 2.1%, compared to 2.7% in the US. President Lee stated that while inflation is low, "perceived inflation may be somewhat higher."
See <Lee Jae-myung's 'Economic Recovery Tax' and Lee Hye-hoon's 'Gray Rhino Tax for Future Investment': The Telescope Effect, December 30, 2025>
<Side Effects of High Prices and Polarization Due to Expanding Money Supply for New Growth, September 3, 2020>
<Statistics Korea Excludes Housing as a Speculative Good, Pushing for Comprehensive Real Estate Tax, December 24, 2021>
<Inflation Caucus: Homeownership Costs Excluded from Consumer Prices Only in Korea, Intensifying Crisis, July 13, 2022>
<US Rent Rise Prolongs Out-of-Control Inflation; Homeownership Costs Excluded from Korean Prices, February 14, 2024>
<US 3rd Quarter Military Expenditure Buildup: Growth Dependent on the Wealthy Turns into a Bubble, Following the Lee Jae-myung Administration, December 24, 2025>