President Trump and Fed Chair Powell are facing a potential battle over inflation, worrying investors and consumers. Fed credibility is at risk, prompting investors to consider real assets like gold and energy stocks as hedges. Powell faces a criminal indictment threat related to his Senate testimony on the central bank’s HQ renovation.

Powell described the grand jury subpoenas from the Justice Department as “unprecedented” and questioned the motives behind the investigation. The administration’s desire for lower interest rates adds fuel to the fire. Powell maintains he performed his duties without political influence. This public feud between the Fed and the president is unprecedented.

Inflation expectations may rise due to the battle, with year-ahead expectations at 4.2%. Investors may see stock sell-offs as they adjust to higher risks. Fed independence risks could be a key theme in 2026, according to Evercore’s economics team. The situation could impact the financial system if not resolved.

Read more at Yahoo Finance: Trump’s fight with Fed Chair Jerome Powell may unleash one surprise economic consequence