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 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 significance of Fed independence
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, characterized the latest shifts as “clearly risk off,” indicating that this trend could build further in the months ahead. Yet he also pointed out that a broad market sell-off may not unfold, since Powell is set to remain in his role for now, faces no immediate prospect of removal, and has committed to maintaining his current monetary policy stance.
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 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 involving Powell and the Fed underscore how political power and institutional independence must be carefully balanced, and investors are tracking these events closely as they assess potential threats to US financial stability and adjust to the broader effects of possible political pressure on monetary policy. As the year moves forward, market participants are expected to stay alert, with precious metals, Treasury yields, and equity markets continuing to signal persistent uncertainty.
Overall, the episode highlights how political events can reverberate across financial markets, reshaping investor behavior, altering asset values, and affecting perceptions of risk. Although short-term movements have remained restrained, the broader consequences for market confidence and the Fed’s independence will be monitored closely, influencing both domestic and global investment choices throughout 2026.
