Markets Churn on "Sell America" Fears Amid Unprecedented Fed Independence Crisis
Financial markets convulsed Monday under the weight of a historic political shock, as Federal Reserve Chair Jerome Powell’s announcement of a criminal investigation into him fueled a broad "Sell America" trade and rattled faith in the central bank's autonomy.
Powell’s Sunday video statement, in which he framed the Justice Department probe as retribution for the Fed resisting presidential pressure on interest rates, triggered an immediate flight from U.S. assets. The Dow Jones Industrial Average plunged nearly 500 points intraday, while the U.S. dollar weakened. Traditional safe havens soared, with gold and silver surging to all-time highs.
"This is unambiguously risk off," said Krishna Guha, head of global policy at Evercore ISI. He described a scenario where global investors attach a higher risk premium to U.S. assets, accelerating capital rotation away from American markets.
The "Sell America" narrative gained traction beyond the Powell investigation. JPMorgan's trading desk highlighted looming Supreme Court oral arguments on whether President Trump can fire Fed Governor Lisa Cook, coupled with the recent proposal to cap credit card rates at 10%. "Combined, the 'Sell America' theme may be the dominant narrative," the firm told clients.
Market Anxiety Muted but Present
Despite the dramatic moves, market fear gauges suggested measured, not panicked, concern. The CBOE Volatility Index (VIX) rose but remained within its recent range, and U.S. equities staged a partial rebound by late morning, with the S&P 500 even notching a new record high. This indicated investor hesitation to fully commit to the negative thesis without further escalation.
"The market doesn’t like it," said Ed Yardeni of Yardeni Research, "but volatility is likely to dominate markets in the near term." Analysts noted that while the macro and corporate backdrop remains supportive, the threat to institutional independence creates a clear overhang.
Former Fed Chair Janet Yellen expressed surprise that markets weren't "more concerned," emphasizing the probe is widely viewed as an assault on the Fed's apolitical mandate. The incident has forced a repricing of political risk that markets had begun to discount after months of "hostile jawboning."
The international outperformance underscored the localized stress, with the iShares MSCI ACWI ex US ETF advancing about 0.8% as capital sought alternatives.
As the market enters the heart of earnings season, the episode injects a profound layer of uncertainty. While the immediate selling pressure eased, the crisis has fundamentally altered the calculus for U.S. assets, placing the durability of the nation's institutional frameworks under direct market scrutiny.
