The U.S. Justice Department has launched a federal investigation into Federal Reserve Chair Jerome Powell, sparking broader concerns about the central bank's credibility. ING economist James Knightley weighs in on the implications, warning that erosion of confidence in Fed leadership could trigger significant volatility in bond markets.

The timing matters. As markets already grapple with inflation expectations and rate policy uncertainty, any perception that the Fed's integrity or independence is compromised adds another layer of risk. Bond traders are particularly sensitive to institutional trust—their pricing depends heavily on confidence that the Federal Reserve operates with full autonomy and credibility.

Knightley's take underscores a critical reality: when doubts creep in about policymaker reliability, capital flows shift. Investors seeking safety may rotate between asset classes, and that cascading effect ripples beyond just fixed income. For crypto markets watching macro conditions closely, Federal Reserve credibility remains a key barometer for overall financial system sentiment.