US Stock Markets Hit Fresh Highs as Trump-Fed Tensions Roil Currency Markets and Banking Sector

Markets Rally Despite Political Turmoil

U.S. stock markets reached fresh highs on January 13, 2026, with the S&P 500 rising 0.2% to 6,977.3, the Dow adding 0.2% to 49,590.2, and the Nasdaq gaining 0.3% to 23,733.9.[1] The rally came despite significant political headwinds, as traders refocused on interest rates and corporate earnings after initial volatility sparked by reports that the Justice Department threatened action against Federal Reserve Chair Jerome Powell.[1]

Trump Administration Escalates Fed Independence Battle

The Department of Justice sought to compel Powell to step down not only as chairman but also as FOMC governor, marking an unprecedented escalation in tensions between the Trump administration and the Federal Reserve.[2] However, Powell has signaled his willingness to fight for the Fed's independence, potentially remaining on the Committee after May and depriving Trump of the opportunity to appoint another candidate.[2] According to asset managers at PIMCO, PGIM, and DWS Group, criminal charges against Powell could destabilize the U.S. debt market by forcing investors to demand higher risk premiums and keeping Treasury yields elevated, ultimately slowing the U.S. economy.[2]

Credit Card Rate Cap Proposal Hammers Banking Stocks

Trump's proposed 10% cap on credit-card interest rates sent shockwaves through the financial sector, with Capital One dropping 6.4% and Citigroup falling 3.0%.[1] Bank executives warned that the effort to address affordability would hurt the economy, though they acknowledged that U.S. consumers remain resilient despite economic pressures.[3] Barclays also fell 2.4% as the credit-card rate-cap proposal weighed on lenders across the board.[1]

Dollar Strengthens Amid Geopolitical Uncertainty

The U.S. dollar fought back from early sell-offs inspired by concerns about Trump administration attacks on Fed independence, with USDJPY leading the way higher on increasing noise that Japan's Prime Minister will call snap elections.[1] USDJPY traded as high as 158.97 in Tokyo by late Tuesday, while EURUSD backed off to the 1.1650s after threatening the 1.1700 level on Monday.[1] The greenback's strength reflects expectations that the Fed will maintain high interest rates for an extended period, giving the dollar an undeniable advantage despite the political turmoil.[2]

Tech Stocks Gain on AI Developments

Walmart jumped 3.0% on momentum from its Nasdaq 100 index inclusion and new artificial intelligence features, while Alphabet added 1.0% after Apple agreed to use Gemini in Siri.[1] Tech stocks remained supported by hopes that economic growth cools without triggering a recession, even as Powell-related headlines kept some investors cautious.[1]

Banking Sector Faces Multiple Headwinds

Citigroup fell after reporting a rare earnings miss, with losses related to asset sales in Russia contributing to the decline.[3] Wells Fargo beat on earnings but missed on revenue, setting new profit targets amid broader economic uncertainty.[3] The banking sector's struggles reflect mounting concerns about credit quality and the potential impact of Trump's proposed rate cap on profitability.

Retail and Luxury Sectors Show Weakness

Saks Global, the owner of Saks, Neiman Marcus, and Bergdorf Goodman, filed for Chapter 11 bankruptcy, becoming the highest-profile department-store chain to file since the pandemic.[3] The filing underscores ongoing challenges in the luxury retail sector amid shifting consumer spending patterns and elevated debt levels.

What's Ahead

Investors are bracing for a significant week ahead, with major U.S. banks continuing earnings season and key economic data including December CPI expected to move markets.[5] December inflation data will be particularly important, as Bloomberg analysts expect core CPI to accelerate from 2.6% to 2.7%, potentially providing additional support for the U.S. dollar if rapid growth is confirmed.[2]