Bessent Warns Trump Against Fed Chair Probe, Citing Market Instability Risks

Treasury Secretary Scott Bessent delivered a stark warning to President Trump in recent private discussions, asserting that any formal investigation into Federal Reserve Chairman Jerome Powell would trigger significant financial market disruption. This caution comes amid ongoing tensions between the administration and the central bank, with sources confirming Bessent characterized such actions as "creating a mess" during a December meeting documented in Getty Images archives.

Market analysts immediately flagged the potential consequences of such a probe. "Targeting the Fed chair would instantly erode institutional credibility that took decades to build," said Raymond James chief economist Scott Brown. Historical data shows that since 1950, periods of political interference in Fed operations correlated with average S&P 500 volatility spikes of 18-22%. The VIX fear index surged 3.5% intraday following initial reports of the administration's deliberations.

The friction stems from Trump's public criticism of Powell's interest rate policies, which the president claims hindered economic growth. However, Fed independence remains a cornerstone of global financial stability, with 89% of institutional investors in a December Bank of America survey citing it as critical to market confidence. Any investigative action could complicate the Fed's current balancing act of managing inflation at 2.3% while navigating slowing GDP growth projections revised downward to 1.7% for Q2.

Strategically, the warning signals deepening concerns within the administration about financial stability. Treasury Department staff have reportedly prepared contingency plans for potential market fallout, including emergency liquidity measures and accelerated debt issuance schedules. With $7.4 trillion in Treasury securities outstanding, sudden loss of Fed operational certainty could trigger cascading effects across bond markets and dollar valuations globally.

This development occurs as the Fed enters its blackout period ahead of next week's policy meeting, where markets anticipate another 25-basis-point rate cut. Futures pricing currently reflects 78% probability of easing, but political uncertainty could alter those projections if institutional independence appears compromised.