Hi YXI friends,

On Friday, the DOJ served the Fed with grand jury subpoenas, threatening a criminal indictment. The indictment was related to Powell’s June congressional testimony on ongoing renovations of the Fed's headquarters.

Trump has for a while threatened to do this to force Powell’s resignation, but it still feels surreal that the DOJ went ahead with it.

While Trump could either pressure the Fed to become more dovish (or threaten to investigate everyone, if not already done so) or install a very dovish new Fed chair this year, the perceived independence of the Fed is very important to markets.

As we have seen in recent months, a lower Fed funds rate at the short end of the yield curve does not imply a lower long-end yield (10-30 years). The market could grow more concerned about the White House's overreach and unsustainable government spending, thereby punishing demand for long-end bonds.

So far, there has been a very muted market reaction. We shall see how things unfold from here.

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