By juyt noiul anuary 12, 2026
NEW YORK — The delicate equilibrium of the American financial markets faced a dual-front assault on Monday, as a sudden criminal probe into the nation’s top central banker and a populist push for credit card interest rate caps sent shockwaves through the New York Stock Exchange. While the major indexes managed to claw back from steep morning losses, the day’s events have ignited a fierce debate over the future of the Federal Reserve’s independence and the stability of the U.S. banking sector.
The S&P 500 hovered near the flatline by mid-afternoon, a remarkable recovery after falling nearly 0.5% at its session lows. The Nasdaq Composite led the rebound, trading 0.3% higher, while the Dow Jones Industrial Average remained the laggard, down 61 points, or 0.1%, after being down as much as 500 points earlier in the day. The intraday “V-shaped” recovery was driven largely by a surge in Walmart shares and a resilient technology sector, which helped offset a brutal sell-off in financial stocks.
The Powell Subpoena: A Constitutional Crisis?
The primary catalyst for the morning’s “sell-America” trade was a stunning Sunday evening announcement from Federal Reserve Chair Jerome Powell. In an unusual direct video statement, Powell confirmed that the Department of Justice (DOJ) has opened a criminal investigation into his June 2025 testimony before the Senate Banking Committee.
The investigation centers on the $2.5 billion renovation of the Fed’s historic Marriner S. Eccles Building in Washington, D.C. Critics within the Trump administration, led by Office of Management and Budget (OMB) Chair Russell Vought, have alleged that the project’s cost overruns—which saw the budget balloon from an initial $1.9 billion—were mismanaged and that Powell’s subsequent testimony regarding the “ostentatious” nature of the renovations was misleading.
Powell, however, did not mince words in his defense. “This new threat is not about my testimony or about the renovation of office buildings,” Powell said in the video. “Those are pretexts. The threat of criminal charges is a direct 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.”
The move marks an unprecedented escalation in President Trump’s long-running feud with the central bank. Throughout 2025, the market largely ignored the President’s social media broadsides as the Fed successfully navigated a “soft landing,” cutting rates three times as inflation stabilized. But with the DOJ now involved, the narrative has shifted from political theater to a potential constitutional crisis.
“The market has seen this before and doesn’t like it. It’s not about Jerome Powell at this point; it’s about the institutional independence of the Federal Reserve,” said Jay Woods, chief market strategist for Freedom Capital Markets. “When the DOJ becomes a tool for monetary policy pressure, the knee-jerk reaction is to sell.”
The 10% Cap: Banking Sector Braces for Impact
Adding to the market’s “indigestion” was a fresh policy proposal from the White House. Late Friday, President Trump called for a one-year cap on credit card interest rates at 10%, arguing that Americans are being “ripped off” by current rates that often exceed 20% or 30%.
The reaction from the banking sector was swift and severe. Citigroup shares tumbled 3%, while JPMorgan Chase and Bank of America fell more than 1%. Capital One, which has a significant exposure to subprime and consumer credit, saw its shares slide 6%.
Lending experts warned that such a cap, while popular with voters ahead of the 2026 midterm elections, could backfire by forcing banks to tighten lending standards. “If you cap the return at 10% but the risk of default remains high, banks simply won’t lend to anyone without a perfect credit score,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “This could inadvertently starve the very consumers the President is trying to help.”
Safe Havens and Retail Standouts
As uncertainty swirled, investors sought refuge in traditional safe-haven assets. Gold futures jumped 3%, hitting a record near $4,600 an ounce, as bullion is often viewed as a hedge against a “political Fed” that might be pressured into allowing inflation to run hot.
Conversely, Walmart emerged as a rare bright spot, gaining 2%. The retail giant is benefiting from two major tailwinds: its upcoming inclusion in the Nasdaq-100 index (effective January 20, 2026) and a newly announced “Agentic” shopping partnership with Google Gemini. The partnership allows customers to use AI “agents” to handle the entire shopping process—from product discovery to native checkout—directly through Google’s chatbot.
The Road Ahead
While the markets recovered their footing on Monday, analysts suggest the “risk-off” sentiment may persist. The Federal Open Market Committee (FOMC) is expected to hold rates steady at its meeting later this month, a move that could further antagonize a White House demanding deeper cuts.
Meanwhile, the crypto space continues to provide its own drama. BitGo, a leading crypto custodian, announced Monday that it is eyeing a $2 billion valuation for its upcoming IPO. The firm plans to offer 11.8 million Class A shares priced between $15 and $17, signaling that despite the macro-economic noise, the digital asset infrastructure remains a core focus for institutional capital.
As the trading day drew to a close, the focus remained squarely on Washington. With Powell’s term set to expire in May, the next four months promise to be among the most tumultuous in the 113-year history of the Federal Reserve.