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 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 long been considered a pillar of US financial stability, allowing monetary policy to be guided by economic indicators rather than political pressure. The Trump administration’s public criticism of Powell over interest rates challenged this principle, with the president seeking faster rate cuts to lower borrowing costs. While lower rates can benefit consumers through reduced credit card and loan rates, aggressive or premature cuts can unsettle investors, who may anticipate higher inflation and demand greater returns on US assets. This can push up Treasury yields and borrowing costs, counteracting the intended economic stimulus.
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, 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 “debasement trade”
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 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.
