Key Points
- The dollar, U.S. stocks, and Treasuries all fell on Monday after the Trump administration escalated its attacks on the Federal Reserve.
- Fed Chair Jerome Powell revealed that the central bank has been served with grand jury subpoenas from the Justice Department.
- The move has reignited fears about the Fed’s independence and political interference in interest rate policy.
- Some strategists are warning of a deeper selloff if tensions continue to escalate.
A “Sell America” sentiment swept through global markets on Monday after the Trump administration ramped up its attacks on the Federal Reserve. The dollar, U.S. stocks, and government bonds all slid after Fed Chair Jerome Powell revealed that the central bank has been hit with grand jury subpoenas from the Justice Department. This latest move has reignited fears about the Fed’s independence and the potential for political interference in the setting of interest rates.
Powell said the subpoenas relate to his congressional testimony regarding a renovation project at the Federal Reserve’s headquarters. However, this is just the latest in a series of confrontations between the White House and the central bank. President Trump has repeatedly called for aggressive rate cuts and has even tried to fire members of the Fed’s board.
“Any development that raises questions about the Fed’s independence adds uncertainty around U.S. monetary policy,” said one portfolio manager. “This is likely to reinforce existing trends of diversification away from the dollar and increase interest in traditional hedges such as gold.”
The market reaction was swift. The dollar fell, and the yield on the 10-year U.S. Treasury note rose to its highest level since September. Some strategists warn that the selloff could worsen if tensions continue to rise.
This is a bad time for the market to be worrying about the Fed’s independence, as U.S. inflation is expected to rise in the coming months. If investors lose faith in the Fed’s ability to act independently to control prices, it could lead to even more volatility.
While President Trump has denied any knowledge of the DOJ’s investigation, the move is seen by many as another attempt to pressure the Fed to do his bidding. As one analyst put it, the administration seems “focused on regaining public approval ahead of the midterm elections, even at the expense of institutional credibility.”
