Investors moved quickly after reports emerged of a criminal probe involving Federal Reserve Chair Jerome Powell, stirring renewed worries about US financial stability.The disclosure prompted mild pullbacks in equities, fixed-income markets, and the dollar, underscoring anxiety about the Fed’s autonomy.
US equity markets began the session in negative territory after reports surfaced that federal prosecutors were examining Powell. The Dow Jones Industrial Average shed 159 points, or 0.32%, while the broader S&P 500 eased 0.14% and the tech-focused Nasdaq edged down 0.1%. The US dollar lost ground against major global currencies, with the dollar index slipping 0.35%, reflecting a cautious stance among currency traders. At the same time, Treasury yields inched higher, with the 10-year yield nearing 4.2%, close to its highest level in a month, indicating that mounting pressure on the Fed might push borrowing costs upward rather than paving the way for the rate cuts sought by the administration.
Unusual market alignment and rising volatility
The simultaneous decline in stocks, bonds, and the dollar is atypical, as these assets often move in opposite directions. Wall Street’s volatility gauge, the VIX, jumped 6%, while precious metals rallied sharply. Gold futures climbed 3%, reaching record levels above $4,600 per troy ounce, and silver surged 8%, outpacing gains in gold. Analysts described this as a modest revival of the “Sell America” trade, a term reflecting investor caution in the face of political interference in monetary policy. Karl Schamotta, chief market strategist at Corpay, noted that while the reaction was limited, the trade underscored lingering concerns over Fed independence.
The importance of the Fed’s autonomy
An independent central bank has traditionally been viewed as a cornerstone of US financial stability, ensuring that monetary policy responds to economic data instead of political influence. The Trump administration’s public pushback against Powell on interest rates tested this norm, as the president pressed for quicker cuts to reduce borrowing expenses. Although lower rates can help consumers by trimming credit card and loan costs, cuts that arrive too quickly or too aggressively can unsettle investors, who may expect rising inflation and seek higher returns on US assets. As a result, Treasury yields and borrowing costs may climb, ultimately offsetting the economic boost such cuts were meant to deliver.
Analysts warn that a sustained perception of eroding Fed independence could weaken the dollar, lift long-term yields, and increase global market volatility. Schamotta emphasized that such outcomes run counter to the administration’s stated economic goals, as investor confidence in the US financial system is closely linked to the Fed’s credibility and autonomy.
Historical backdrop and market recollection
Monday’s market activity echoes the “Sell America” dynamics observed in spring 2025, when fears over Trump’s trade and economic policies prompted investors to pull back from US assets. At that time, both bonds and the dollar fell, and equities hovered near bear market territory before recovering as political tensions eased. Experts highlight that current market reactions are cautious, reflecting both wariness over Fed independence and lessons learned from prior episodes of volatility.
Krishna Guha, vice chairman at Evercore ISI, described the recent movements as “unambiguously risk off,” suggesting that the trade could gather momentum in the coming months. However, he also noted that the market may not experience a full-scale sell-off, as Powell remains in position for a limited time, there is no immediate threat of removal, and he has pledged to continue his monetary policy approach.
Precious metals and the “debasement trade”
The renewed interest in gold and silver aligns with what Wall Street analysts call the “debasement trade.” In times of political uncertainty or doubts over central bank credibility, investors often flock to hard assets that are not tied to a government or institutional reputation. These assets provide a hedge against potential currency devaluation and rising debt concerns. The recent surge in precious metals underscores how investors seek stability in tangible assets when confidence in the financial system is shaken.
Markets experienced brief bouts of panic in 2025 when Trump openly criticized Powell, questioning his timing and competence. Analysts observed that investors had grown accustomed to political pressure on the Fed and typically did not react unless a tangible action occurred. The recent subpoenas and Powell’s responses may constitute such a “coordinating proof point,” potentially triggering more pronounced market reactions.
The developments surrounding Powell and the Fed highlight the delicate balance between political authority and institutional independence. Investors are closely monitoring the situation, weighing the risks to US financial stability while adapting to the broader implications of potential interference in monetary policy. As the year progresses, market participants are likely to remain vigilant, with precious metals, Treasury yields, and equity markets reflecting ongoing uncertainty.
Overall, the episode serves as a reminder of how political developments can ripple through financial markets, influencing investor behavior, asset valuations, and perceptions of risk. While immediate moves have been measured, the long-term implications for market confidence and the Fed’s autonomy will continue to be closely scrutinized, shaping both domestic and international investment decisions in 2026.
