DOJ Criminal Investigation into the Fed Hits Risk Appetite
Fed Chair Powell announced the US Department of Justice opened a criminal investigation into the Fed on Sunday, January 11, weighing on US stock futures. In a video message, Fed Chair Powell stated:
“This unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure. This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings; it is not about Congress’s oversight role. […] The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”
Powell emphasized the significance of the criminal charges, stating:
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead, monetary policy will be directed by political pressure or intimidation.”
Fed Speakers in Focus as US Inflation Data Looms
US futures posted heavy losses during the Asian morning session on Monday, January 12, reversing gains from the previous session as the news of the criminal investigation weighed on sentiment.
The Nasdaq 100 E-mini and the S&P 500 E-mini slid 202 points and 34 points, respectively, while the Dow Jones E-mini fell 204 points.
Later Monday, Fed speakers will be in focus following Fed Chair Powell’s announcement. Fed calls to delay Fed rate cuts following December’s stronger-than-expected jobs report and January’s ISM Services PMI would weigh on US equity futures. Market reaction to Powell’s announcement is likely to continue weighing on risk sentiment.
There are no US economic reports for markets to consider ahead of tomorrow’s CPI report, which is likely to influence the Fed rate path and risk appetite.
Economists forecast the US annual inflation rate will remain at 2.7% in December after cooling from 3% in September. There was no October report because of the US government shutdown. Softer inflation supports a more dovish Fed rate path, typically lowering borrowing costs. Lower borrowing costs boost corporate profits and equity valuations.
Meanwhile, corporate earnings will also influence market trends. JPMorgan Chase (JPM) will kick-start the earnings season on January 13.
Despite the morning losses, optimism over corporate earnings and hopes for an H1 2026 Fed rate cut support the cautiously bullish near-term and bullish medium-term price outlook.
Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500
Despite the morning reversal, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs. The EMAs signaled a bullish short- to medium-term outlook, aligning with positive fundamentals.
Near-term trends will hinge on geopolitical developments, US economic data, corporate earnings, and Fed rhetoric. Key levels to monitor include:
Dow Jones
- Resistance: the January 7 record high of 49,876, and then 50,000.
- Support: 49,000 followed by the 50-day EMA (48,121).