Investors reacted swiftly after news of a criminal investigation into Federal Reserve Chair Jerome Powell, reigniting concerns over US financial stability. The announcement triggered modest sell-offs across stocks, bonds, and the dollar, highlighting fears over the independence of the Fed.
US equity markets opened lower following reports that federal prosecutors were investigating Powell. The Dow Jones Industrial Average dropped 159 points, a decline of 0.32%, while the broader S&P 500 slipped 0.14%, and the tech-heavy Nasdaq fell by 0.1%. The US dollar weakened against other major currencies, with the dollar index down 0.35%, signaling a cautious response from currency traders. Meanwhile, Treasury yields rose modestly, with the 10-year yield approaching 4.2%, close to a one-month high, suggesting that pressure on the Fed could lead to higher borrowing costs rather than the rate cuts advocated 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 context and market memory
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 dynamics of currency debasement
The renewed interest in gold and silver reflects what Wall Street analysts describe as the “debasement trade.” During periods marked by political volatility or skepticism about central bank reliability, investors tend to shift toward hard assets that remain independent of governmental or institutional standing. Such assets serve as a buffer against possible currency depreciation and escalating debt issues. The latest upswing in precious metals highlights how, when faith in the broader financial system wavers, investors gravitate toward the steadiness offered by tangible holdings.
Markets saw short flashes of alarm in 2025 when Trump sharply reproached Powell, challenging both his timing and his competence. Analysts noted that investors had become used to political pressure on the Fed and generally stayed calm unless a concrete move took place. The latest subpoenas and Powell’s replies could serve as a “coordinating proof point,” possibly setting off more significant 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.
