Amid Fed Chair Investigation, Traders Forecast 13% Chance Powell Leaves Early

Federal prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell on Sunday. The investigation is over whether Powell lied about the scope of the central bank’s headquarters’ renovations when he testified to Congress.

On the same day, Powell released a statement claiming that the investigation over his testimony was not about the renovations at all. He said:

“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.”

Kalshi traders give Powell a 13% chance of leaving before his Chair term ends in May 2026, up from 6% the day before. Further, traders don’t believe this lawsuit will affect the Fed’s January decision. The Fed has a 95% chance of maintaining rates at their current level.

Rate cuts vs. inflation danger

President Trump has wanted lower interest rates to maintain his image as a president who is strong on the economy. Lower interest rates make it easier for people to take out loans for education, cars, and homes.

However, lowering rates too quickly can backfire. Increased spending can lead to higher levels of inflation. Investors can also demand higher interest rates in anticipation of higher inflation, defeating the purpose of lowering the Fed rate.

Both of Trump’s leading candidates to chair the Fed have called for faster interest rate cuts. Trump’s nomination of either Kevin Hassett (44%) or Kevin Warsh (36%) is expected in February. Kalshi traders give Trump a 76% chance of announcing his nomination by Feb. 1 and an 84% chance of announcing it by Feb. 15.

Independence outside of the Fed

In December 2025, Trump explicitly said that the next Fed chair must consult him on interest rates. Kalshi’s Fed markets have priced in Trump’s attacks on the independence of the Federal Reserve. Prices suggest that the Fed’s independence will hold through the rest of Powell’s tenure.

After Trump installs his preferred Fed Chair candidate, Trump’s preferences will be a more influential signal regarding the Fed’s rate decisions. Trump’s insistence on low rates and subservience from the next Fed Chair will add new variables to forecasting the next Fed rate decisions.

Traders should also bear agency independence in mind as they explore markets related to other federal agencies and their actions.