"Sell America" sentiment swept through markets on Monday as the Trump administration escalated its attacks on the Federal Reserve, intensifying investor worries over the central bank's autonomy. The dollar, U.S. Treasuries, and U.S. stock index futures all declined in early Monday trading. This followed comments from Fed Chair Jerome Powell suggesting that the Justice Department's threat of criminal prosecution stemmed from disagreements between the administration and the Fed over monetary policy. This action represents the latest in a series of pressures, such as the dismissal of Governor Cook and repeated calls for substantial interest rate cuts. The market decline ignited debates over the extent to which the administration could influence interest rate policy, an area long considered within the Fed's exclusive purview. It also revived questions about whether investors should reduce their exposure to U.S. assets and the dollar, a theme that dominated global markets last April when the administration announced sweeping tariffs. "Any developments that cast doubt on the Fed's independence add uncertainty to U.S. monetary policy," said Gary Tan, a portfolio manager at Allspring Global Investments. "This could reinforce the current diversification trend away from dollar dependency and increase investor interest in traditional hedges like gold." Powell stated that the grand jury subpoena was related to his congressional testimony in June regarding the renovation of the Fed's headquarters but should be viewed "within the broader context of government threats and persistent pressure." For investors, the escalating situation signals heightened market volatility, as it could have long-term implications for monetary policy. It also places the dollar in the spotlight; the currency dominates world trade and accounts for nearly 90% of foreign exchange transactions. European Central Bank Governing Council member Francois Villeroy de Galhau warned last week that government criticism of the Fed is threatening the dollar's status. "Given the risk that Powell's ability to perform his duties as Fed Chair is being hampered, macro traders are likely to lean towards shorting the dollar," said strategist Mark Cranfield. The Bloomberg Dollar Spot Index fell 0.2%, with the dollar weakening against almost all G-10 currencies. S&P 500 futures dropped 0.5%, and Nasdaq 100 futures declined 0.8%. Following the European market open, U.S. Treasuries extended their losses, with the 10-year yield rising nearly 2 basis points.
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