The criminal investigation into Federal Reserve Chair Jerome Powell threatens to upend the contest over whom President Trump will choose to succeed him as it enters its final stretch. Meanwhile, Philadelphia Fed President Anna Paulson, who will become a voter on interest rates this year, suggested that she shares the prevailing view that there is no hurry to cut rates again.

Please note: The Central Banking newsletter won’t be published Monday in observance of Martin Luther King Jr. Day. We’ll be back Tuesday.

The Justice Department probe of Jerome Powell is creating new obstacles on Capitol Hill and raising hard questions about whether any nominee can be seen as independent—tension that was always present but is now much harder to ignore. Trump has made clear he prizes loyalty in his pick, but the investigation—which Powell said was part of a pressure campaign to get the Fed to lower interest rates—threatens to make that quality a liability.

• Republican Senator Steps Up Complaints About Trump’s Stances

Japan’s Finance Minister issued another verbal warning on the yen, suggesting authorities are prepared to act to stem excessive currency depreciation. A joint statement between the U.S. and Japan says that “decisive action—meaning intervention—can be taken against sharp currency moves that do not reflect fundamentals,” Satsuki Katayama said at an event held by the Japan National Press Club on Friday.

New York Attorney General Letitia James filed suit against the former head of Emergent BioSolutions, accusing him of insider trading for selling his shares in the company before disclosing contamination issues in its production of the Covid-19 vaccine.

9:15 a.m.: Industrial Production and Capacity Utilization
10 a.m.: U.S. International Investment Position
10 a.m.: NAHB Housing Market Index

U.S. financial markets closed for Martin Luther King Jr. Day

With the Federal Reserve under pressure to cut interest rates more, its counterpart in Australia is facing a different dynamic with implications for global currency and fixed-income markets, writes WSJ's James Glynn. The Reserve Bank of Australia’s board meets in February against a backdrop of a series of troubling indicators for investors who have gotten used to looser monetary policy. Pricing pressures remain acute. Private-sector demand is running hot. And the housing market is booming once again. Looming in the calendar is inflation data for the three months through December. If it confirms that trimmed mean inflation remains above the RBA’s 2%-3% target and is drifting further away from the desired midpoint of the band, then the central bank could have no choice but to act.

• Wall Street is rolling into the new year firing on all cylinders, after the nation’s biggest banks had one of the strongest years on record in 2025.
• The U.S. and Taiwan signed a trade deal Thursday aimed at boosting American production of semiconductors in exchange for lower tariffs, adding to the Trump administration’s efforts to bring critical industries to the U.S.
• A slump by Canada’s auto industry in November as a semiconductor shortage weighed on activity hit sales by factories and wholesalers and threatens to hold back economic growth in the final quarter of last year.
• New Zealand’s economy is showing signs of a full-blown recovery with manufacturing activity surging in December to its highest level since 2021.

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.