(Bloomberg) — \u201cSell America\u201d sentiment rippled through markets on Monday after the Trump administration escalated its attacks on the Federal Reserve, fanning concerns over the central bank\u2019s autonomy in setting interest rates.<\/p>\n
The dollar, Treasuries and US equities futures slid after Chair Jerome Powell said the threat of a US criminal indictment was a consequence of a disagreement over monetary policy. While the declines were relatively small, the hot-button issue of the Fed\u2019s independence and the implications for US markets resurfaced in investor debates.<\/p>\n
Most Read from Bloomberg<\/p>\n
\u201cAny development that raises questions about the Fed\u2019s independence adds uncertainty around US monetary policy,\u201d said Gary Tan, portfolio manager at Allspring Global Investments, which oversees more than $600 billion. \u201cThis is likely to reinforce existing trends of diversification away from the dollar and increase interest in traditional hedges such as gold.\u201d<\/p>\n
On Sunday evening, Powell said the US central bank had been served grand jury subpoenas from the Justice Department that were related to his congressional testimony on ongoing renovations of the Fed\u2019s headquarters. It\u2019s the latest in a series of confrontations, which include efforts to fire Governor Lisa Cook and repeated calls for aggressive interest rate cuts.<\/p>\n
\u201cTo characterize the events as putting the Fed independence discussion into uncharted waters would be an understatement,\u201d Ian Lyngen, head of US rates strategy at BMO Capital Markets, wrote in a note. \u201cWe remain skewed toward higher yields in the near-term.\u201d<\/p>\n
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Bloomberg\u2019s dollar gauge fell 0.3%, the most since Dec. 23. S&P 500 futures slid 0.6%. Ten-year US Treasury yields advanced three basis points to 4.20%, on track for the highest close since September. Yields on the 30-year bond rose five basis points to 4.86%.<\/p>\n
Some strategists warned that the selloff may deepen if tensions continue to escalate. JPMorgan Asset Management flagged the risk of a steeper Treasury yield curve, meaning long-term rates would rise more than shorter ones, on expectations of more aggressive rate cuts. Lombard Odier sees the dollar and Treasuries coming under more pressure. Invesco Asset Management said non-US assets like European and Asian equities look more favorable.<\/p>\n
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At the center of the debate is how far the US president can and should influence the nation\u2019s rate stance, which in recent decades have been insulated from political interference. Investors have also questioned whether they should reduce exposure to US assets and the dollar \u2014 a theme that dominated global markets last April when President Donald Trump announced universal tariffs.<\/p>\n
WATCH: Schroder\u2019s Remi Olu-Pitan discusses asset allocation amid Fed independence risks. She says the current situation could \u201cweigh negatively\u201d on US equities. Source: Bloomberg <\/p>\n
\u201cThis is a bad time to be worrying about Fed independence for the market,\u201d said Bhanu Baweja, chief strategist at UBS Investment Bank, adding that US inflation is likely to rise in the coming months. \u201cThe one common theme for this year seems to be not just a weaker dollar, but equity vol going higher.\u201d<\/p>\n
The president has long pressed the Fed to cut rates quicker to boost the economy and ease government borrowing costs, whereas Fed governors who set rates have been wary of rising inflation. Paul Volcker, who became Fed chair in 1979, is remembered for waging a dogged fight to quell an inflation problem that many believe went unchecked because the Fed gave in to pressure from then President Richard Nixon.<\/p>\n
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In an interview with NBC News on Sunday, Trump denied having any knowledge of the Department of Justice\u2019s investigation into the central bank.<\/p>\n
\u201cThe news could once again propagate the \u2018Sell America\u2019 narrative as we approach the opening bell,\u201d said Gerald Gan, chief investment officer at Singapore-based Reed Capital Partners. The dynamics reflect an administration \u201cfocused on regaining public approval ahead of the midterm elections, even at the expense of institutional credibility.\u201d<\/p>\n
What Bloomberg Strategists Say…<\/p>\n
\u201cMacro traders are set to lean into US dollar shorts amid the risk that Powell is hampered in fulfilling his role as Fed chair.\u201d<\/p>\n
Mark Cranfield, Markets Live Strategist. Read more on MLIV.<\/p>\n
US assets came under strain last year when Trump\u2019s sudden global tariff announcement sent markets into a tailspin. Treasury yields had spiked when the levies were announced in April, with 30-year yields soaring more than 80 basis points on an intraday basis between the so-called Liberation Day to late May. The dollar tumbled more than 8% in 2025, its steepest annual decline since 2017.<\/p>\n
\u201cThe Fed subpoena is another example of how US assets are becoming less attractive,\u201d said David Chao, global market strategist at Invesco Asset Management, which oversees more than $2 trillion. \u201cNot only is the US retrenching behind its Fortress America borders, the country is also becoming more predatory.\u201d<\/p>\n
Some are taking a more cautious view, saying that given the strong positioning of the dollar as a reserve currency, the deep liquidity in Treasuries and the artificial intelligence boom powering stocks, any pullback could be an opportunity to buy. \u201cWhile we are always concerned with independence, it is something we will watch and make decisions when there is a more definable economic outcome,\u201d said Marvin Loh, senior macro strategist at State Street in Boston.<\/p>\n
Still, \u2018Sell America\u2019 pressures are unlikely to go away as trading gets underway for 2026.<\/p>\n
Powell\u2019s investigation looks \u201cmore like smoke than fire\u201d right now, said Hebe Chen, senior market analyst at Vantage Global Prime Pty., but how long that lasts is up for debate. \u201cIts longer-term and more deep-rooted implications are far more profound,\u201d she added.<\/p>\n
–With assistance from Richard Henderson, Matthew Burgess, Alice Atkins, James Hirai and David Watkins.<\/p>\n
(Updates prices and adds quote in the fifth paragraph)<\/p>\n
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