The Big Three - January 2026

Powell under investigation

Global markets were unsettled after reports that US prosecutors had opened a criminal investigation into Federal Reserve Chair Jerome Powell, an unprecedented development that has intensified concerns over the independence of US monetary policy.

The announcement is the latest development in Powell’s long-standing feud with President Trump, who has repeatedly called on Powell to accelerate the Fed’s rate-cutting cycle. Whilst he denied any prior knowledge of the investigation, the announcement was quickly followed by further attacks from Trump, who accused the Fed of acting against US economic interests and reiterated calls for tighter political oversight of monetary policy.

The episode has amplified fears that the Federal Reserve could become increasingly politicised at a critical moment in the economic cycle. Investors have long viewed Fed independence as a cornerstone of US financial stability, and any erosion of that principle risks undermining confidence in policy credibility.

Markets reacted defensively to the news, with US equities and the US dollar falling, whilst safe-haven gold rallied sharply. Volatility broadly rose across asset classes as investors reassessed political risk premia.

Geopolitics dominates the headlines

Global markets are adjusting to a geopolitical backdrop shaped by President Trump’s confrontational foreign-policy stance, highlighted most dramatically by the capture of Venezuelan president Nicolás Maduro and his transfer to the US to face trial. The move marks a historic escalation in US interventionism and has raised fresh uncertainty over Venezuela’s political future and oil sector governance. While markets welcomed the prospect of long-term reform, oil prices remained largely unaffected, despite concerns over potential instability during the political transition and supply distribution.

Trump’s geopolitical posture outside of the Americas has added to market unease. His renewed focus on Greenland, framed around security and access to critical minerals, has unsettled NATO allies and reinforced fears of a return to transactional diplomacy. Meanwhile, a hardening stance toward Iran, including new tariffs announced on its trading partners and potential military action, has heightened the risks surrounding Middle Eastern energy flows.

Once again, markets responded defensively. Gold continued its historic rise due to safe-haven demand, Treasury yields fell, and equity volatility increased, particularly in energy and globally exposed sectors. Investors are increasingly pricing a higher geopolitical risk premium as US foreign policy takes a more aggressive turn.

Japan raises rates to 30-year highs

The Bank of Japan has raised interest rates to their highest level in more than 30 years, marking a decisive break from decades of ultra-loose monetary policy. For much of that period, Japan kept rates near zero to combat chronic deflation, weak domestic demand, and an ageing population that suppressed wage growth and inflation. Yield-curve control and large-scale asset purchases became central pillars of policy as the BoJ sought to stimulate lending and prevent prices from falling.

What has now changed is the durability of inflation - price pressures have broadened beyond just imported energy costs. At the same time, wage growth has strengthened following successive rounds of robust corporate pay negotiations. The BoJ now believes inflation can be sustained closer to its 2% target without extraordinary support, allowing it to normalise policy gradually.

The move has important implications. Higher rates support the yen, ease imported inflation, and improve returns for Japanese savers, but raise borrowing costs for households and highly indebted firms. Globally, tighter Japanese policy could reduce overseas capital flows, nudging global bond yields higher and reshaping long-standing funding dynamics built on cheap yen financing.