Federal Reserve Chair Jerome Powell, in an extraordinary two-minute video released earlier this year, said the criminal investigation into his testimony about the central bank's building renovations was being used as cover by the Trump administration to pressure the Fed into lowering interest rates. Powell's bold move had its intended effect—rallying bipartisan support for the Fed—but even those who cheered his defiance aren’t sure the central bank can prevail in a longer war against sustained presidential pressure. Meanwhile, policymakers continue to gauge the fallout from the Middle East conflict: Minneapolis Fed President Neel Kashkari said Tuesday that one or two rate cuts later this year could be appropriate if inflation cools, but that the war could create conditions that would justify an extended pause. And Kraken tells the WSJ that its banking unit has won access to the Fed's core payment systems—the first such approval in crypto history. 

For eight years, Federal Reserve Chair Jerome Powell’s rule for dealing with Donald Trump was simple: Don’t make eye contact. Then, on a Sunday night in January, he decided to look the president straight in the face.

After receiving subpoenas concerning his testimony months earlier about the Fed’s building renovations, Powell released a bold video dismissing that explanation. “Those are pretexts,” he said, stone-faced, and accused Trump’s Justice Department of threatening him with an indictment because the Fed hadn’t cut interest rates as fast as the president demanded.

Powell’s gambit had its intended effect, rallying bipartisan support to the Fed, which, for now, has preserved its independence.

But even those who cheered his defiance in the skirmish aren’t sure the Fed can win a longer war against sustained presidential pressure. Powell’s term as chair ends in May, and the qualities that made his stand possible don’t automatically transfer to his successor.

He said he didn’t think a restrictive setting was needed for the economy because, before the latest outbreak of war, inflation had been on track to cool gradually. “Before Iran, it seemed like things were gently heading in the right direction,” he said.

Kashkari said the war could complicate that picture, though it was too soon to say how. He drew a parallel to Russia’s full-scale invasion of Ukraine in 2022, which sent a commodity shock around the world and showed how such shocks can be more persistent.

Speaking at a financial conference in Washington, Williams outlined a forecast of steady economic conditions this year, with moderate economic growth and declining unemployment and inflation. He said that at 3.5% to 3.75%, the Fed’s current rate target is appropriate for now, but indicated that if price increases cool, he could support additional cuts.

Crypto just took a big step closer to becoming integrated into the mainstream financial system.

Kraken told The Wall Street Journal that its banking unit has won access to the Federal Reserve’s core payment systems, making it the first crypto firm to be able to move money on the same rails used by thousands of banks and credit unions.

The approval of the so-called master account at the Fed will allow the unit, Kraken Financial, to handle transactions more quickly and seamlessly for big clients and professional traders, the company said.

While Kraken isn’t getting the full range of services that banks enjoy with the Fed—such as payment of interest on reserves held at the central bank—the approval marks a major win for the crypto industry, which for years had been rebuffed in its efforts to tap in to the Fed system.

The U.S.-Israeli attacks against Iran have halted a weekslong rally in U.S. government bonds, pushing the yield on the 10-year Treasury note back above 4% and threatening higher borrowing costs for businesses and consumers. The fight has sparked turbulence in stocks, a development that might normally cause investors to seek safety in bonds. But it has also fueled a jump in energy prices. And for now, that has been more important for investors, raising fears of a resurgence in inflation that drags on debt prices.

To West Texas oilmen, it makes little sense to add expensive rigs and boost production when the war could be short-lived and crude prices drop. What they don’t want is to add to an already big glut and waste their last few sweet spots.

• In a Day of Wild Market Moves, Oil Is a New Haven
• Trump Predicts Oil Prices Will Drop After Iran Conflict

“While we intend to carefully monitor the impact of the situation in the Middle East, we believe it is appropriate to continue raising the policy rate and adjusting the degree of monetary accommodation if the economy and prices improve in line with our quarterly outlook,” Ueda said at a parliamentary session Wednesday.

President Trump lashed out at Spain on Monday, saying that the U.S. would end trade with the European country after it said it wouldn’t allow the U.S. access to its bases as part of the Iran strikes.

• Spain’s Sanchez Reiterates Opposition to Iran War After Trump Threatens Trade Halt

8:15 a.m.: ADP National Employment Report
9:45 a.m.: US Services PMI
10 a.m.: ISM Report On Business Services PMI
11 a.m.: Global Manufacturing PMI
2 p.m.: U.S. Federal Reserve Beige Book

7:30 a.m.: Challenger Job-Cut Report
8:30 a.m.: Preliminary Productivity and Costs
8:30 a.m.: Import & Export Price Indexes
8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims
11 a.m.: Global Services PMI
12 p.m.: Monthly U.S. Retail Chain Store Sales Index
1:15 p.m.: Federal Reserve Vice Chair Michelle Bowman speaks at New York Bankers Association event

The oil rally triggered by the conflict in the Middle East is a key driver of the recent dollar rise, Monex USA's Juan Perez writes. Since crude invoices are mostly denominated in dollars, "the struggles in shipment traffic in the Strait of Hormuz will lead to higher prices and thus force more USD-borrowing," he says. Markets worry the conflict could be longer than previously thought. Perez notes that emerging-market currencies, which were doing well until last week, are now weakening against the dollar. "We keep an open mind to expect the unexpected," Perez says. — Paulo Trevisani

Bank of Canada policymakers might have to tolerate elevated inflation to help the economy adjust to the wider adoption of artificial intelligence, according to new central bank research. The analysis, released Tuesday, examines the impact AI might have on the labor market and productivity, and lays out the challenges ahead for the Bank of Canada. The expectation is that AI lifts potential output, or the economy's speed limit, through productivity gains, while possibly lowering the natural rate of unemployment—or the level at which the labor market fuels neither wage nor price gains. —Paul Vieira

The Bank of England could be forced to raise its key interest rate back above 4% should the surge in energy prices prompted by military action in the Middle East persist, the National Institute of Economic and Social Research says. A year with oil prices at $100 a barrel and gas prices rising a further 50% would push U.K. inflation up by 0.7 percentage points and dampen output growth by 0.2% in 2026, NIESR analysis shows. That would prompt a tighter monetary policy response, with interest rates increasing by approximately 0.8 percentage points this year compared to the baseline, it says. The BOE benchmark rate is currently 3.75%. A more transitory shock to energy prices would raise inflation by around 0.3ppts, allowing the BOE to look through the impact, the analysis says. — Edward Frankl

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.