# Why Trump’s War Week Didn’t Break Markets | Prof G Markets Source: https://www.youtube.com/watch?v=TrMEGapLwe0 Recap page: https://rapidrecap.app/video/TrMEGapLwe0 Generated: 2026-01-19T15:01:13.185+00:00 --- ## Quick Overview Markets did not break following Trump's reported criminal investigation into Federal Reserve Chair Jerome Powell because the overwhelming consensus across finance, politics, and retail investors strongly supported Powell's independence, viewing the investigation as an unacceptable threat to the Fed's crucial role in maintaining economic stability. **Key Points:** - The investigation into Jerome Powell, allegedly centered on misleading Congress about Fed headquarters renovations, triggered swift backlash, with Jamie Diamond calling harm to Fed independence "probably not a good idea." - The market initially sold off in futures but reversed losses by the end of the day and hit record highs the next day, indicating markets believe "Jerome Powell wins" against Trump. - Widespread support for Powell came from former Fed chairs, major central banks, big bank CEOs like Jamie Diamond, and even Republicans, with Senator Tom Tillis stating the event questions the "independence and credibility of the Department of Justice." - Meme stock traders on Wall Street Bets overwhelmingly supported Powell, with the most popular post calling him "an American hero," marking a cultural flip where institutions are being backed against perceived overreach. - Scott Galloway argues that independent central banks are common to the world's most robust economies because politicians, regardless of party, have the temptation to lower interest rates to juice the economy, leading to inflation. - Historical analysis shows that while stocks dip short-term (-2% over four weeks on average) during conflicts, long-term S&P returns over 12 months remain the same as during peacetime, suggesting long-term investors should not sell stocks for gold. - The discussion highlighted that Trump's attempt to remove Powell from the Board of Governors is significant because the entire board sets rates, but Powell's demonstrated judgment means he retains the most influence regardless of title. **Context:** The discussion centers on the immediate market and political reaction to reports that former President Donald Trump initiated a criminal investigation, led by the Justice Department, targeting Federal Reserve Chair Jerome Powell, ostensibly over testimony regarding Fed headquarters renovations. The conversation contrasts this challenge to Fed independence with other geopolitical actions taken by the Trump administration, such as the move in Venezuela, and explores broader investment implications regarding geopolitical instability and commodity markets. ## Detailed Analysis The central theme is that Trump's challenge to Federal Reserve independence by launching an investigation into Chairman Jerome Powell failed to break markets because the financial community and even key political figures rallied to Powell's defense, viewing the move as an attack on necessary institutional stability. Powell's handling of aggressive interest rate hikes, which brought inflation down from 9% to 2.8% (or 2.3% before tariffs), earned him widespread respect, even from the far left and right, and notably from meme stock traders who labeled him a hero for resisting political pressure. Scott Galloway emphasized that independent central banks are vital because politicians invariably seek to lower rates for short-term economic boosts, risking runaway inflation, citing the example of Turkey's hyperinflation after a loyalist took over the central bank. Furthermore, the discussion analyzed that Trump's real goal might be removing Powell from the Board of Governors, not just the chairmanship, though Powell's proven judgment ensures he will maintain influence over board decisions. Separately, the hosts analyzed soaring metal prices (Gold up 72%, Copper up 36%) driven by geopolitical instability (Iran, Venezuela, Greenland tensions), noting metals act as risk-off assets when trust in traditional assets like Treasuries wanes, although historically, stocks perform well long-term even after conflicts begin. Bitcoin, however, underperformed, failing to act as digital gold during this volatile period. ### Golden Globes Interlude - The discussion briefly opened with banter about the Golden Globes, noting Amy Poehler won best podcast despite chatter in the community that she rapidly achieved success after entering the podcasting space. ### Conflict with the Federal Reserve - Trump launched a criminal investigation into Powell, allegedly for misleading Congress about Fed HQ renovations, which Powell called "unprecedented" and politically motivated due to his refusal to cut rates on command. ### Market and Institutional Response - The finance world, including Jamie Diamond and global central banks, supported Powell; markets initially reacted negatively but quickly reversed course, signaling confidence in Powell's victory over the political pressure. ### Importance of Fed Independence - Galloway stressed that economies with independent central banks are the most robust; the temptation for politicians to lower rates to juice the economy creates inflation risks, which Powell successfully managed by raising rates aggressively without causing a recession. ### Powell's Enduring Influence - Even if removed from the Chairmanship, Powell's demonstrated superior judgment means he retains the most influence over the Board of Governors' interest rate decisions, a fact Trump understands. ### Geopolitical Instability and Metals Rally - Geopolitical events—Iran protests, action in Venezuela, Denmark/Greenland tensions—drove massive rallies in metals like Gold (+72%) and Copper (+36%), as they are now viewed as risk-off assets, replacing Treasuries for some investors. ### Bitcoin's Underperformance - Despite global instability, Bitcoin was down 1% year-over-year, failing to perform as "digital gold" when precious metals were rallying, which Galloway admitted he failed to predict after an unsuccessful investment in a Bitcoin treasury company. ### Geopolitical Strategy Analysis - The discussion critiqued the Venezuela intervention as a short-term "Bond film" success executed by the US military, warning that the strategy of threatening allies (Denmark/Greenland) and seeking resource ownership rather than controlling flow risks alienating key long-term partners.