‘Offload America’: Investors abandon U.S. holdings amid concerns over potential loss of Fed autonomy

Unprecedented Pressure on the Federal Reserve

As the search begins for Jerome Powell’s successor as head of the U.S. Federal Reserve in May, one fact is clear: any new appointee faces the risk of criminal charges if they defy President Donald Trump’s wishes. Powell made this point unmistakably in a remarkable statement yesterday, pledging to uphold the Fed’s autonomy in setting monetary policy—even as a federal grand jury investigates his congressional testimony regarding alleged overspending on the central bank’s headquarters renovation.

“The current threat isn’t truly about my testimony last June or the building renovations at the Fed. Those are just excuses. The real issue is that criminal prosecution is being used as a consequence for the Federal Reserve making interest rate decisions based on our independent judgment for the public good, rather than simply following the President’s directives,” Powell stated.

He continued, “This is fundamentally about whether the Federal Reserve can continue to base its interest rate decisions on data and economic realities, or if monetary policy will instead be dictated by political influence and intimidation.”

Market Reactions to Fed Independence Concerns

Overnight, financial markets shifted back to a “Sell America” stance as investors weighed the possibility of a new Fed chair lacking independent authority. Yields on 5-year Treasury notes spiked, signaling that investors now view U.S. government debt as riskier. Gold futures, a traditional safe haven, surged 2.21% to a record high above $4,600 per troy ounce, while S&P 500 futures fell 0.66% ahead of the market open.

Analyst Sentiment Turns Negative

Wall Street experts have responded overwhelmingly with concern. Francesco Pesole of ING remarked to clients, “The simultaneous decline in the dollar, stocks, and Treasuries is reminiscent of last spring’s ‘sell America’ period. If there are further signs of interference with the Fed’s independence, the downside risk for the dollar is significant. The bond market will be the key indicator—whether through short-term rate cut expectations or long-term stress related to independence. A sharp steepening of the yield curve could accelerate the dollar’s decline.”

David Chao, an analyst at Invesco Asset Management, told Bloomberg, “The Fed subpoenas are yet another sign that U.S. assets are losing their appeal. The U.S. is not only retreating behind its own borders, but is also adopting a more aggressive stance.”

Blake Gwinn of RBC Capital Markets warned the Financial Times that these subpoenas could fuel inflation. “If the Fed’s independence faces further threats, markets will begin to price in higher inflation expectations, risk premiums, and term premiums. We haven’t reached that point yet, but each new development brings us closer.”

Short-Term Rate Cuts Less Likely?

Interestingly, some strategists believe the ongoing investigation may actually reduce the likelihood of imminent interest rate cuts. Powell and the Federal Open Market Committee (FOMC) may feel compelled to demonstrate that their decisions are driven by economic data, not legal intimidation.

Paul Donovan of UBS commented, “This situation could actually reinforce the Fed’s independence. Powell’s resolve may indicate he’s not planning to step down as a governor this year. There are indications the Senate might delay confirming a new Fed Chair. Concerns about market reactions and the perception of institutional independence—especially amid legal challenges—could lead to more hawkish policy decisions.”

Pesole of ING added, “Markets aren’t yet pricing in a loss of Fed independence, either because they believe Powell will stand firm, the FOMC won’t be significantly swayed, or the DOJ subpoenas are unlikely to result in charges.”

Nevertheless, asset managers are facing a period of heightened uncertainty. “The Federal Reserve, as we’ve known it for decades, is fading from view. It’s now operating in a changed environment,” Richard Yetsenga, chief economist at ANZ, told the Financial Times.

Market Overview Before the New York Open

• S&P 500 futures: Down 0.66% this morning, after closing the previous session up 0.65%.
• STOXX Europe 600: Fell 0.1% in early trading.
• FTSE 100 (UK): Flat in early trading.
• Nikkei 225 (Japan): Closed today.
• CSI 300 (China): Rose 0.65%.
• KOSPI (South Korea): Increased 0.84%.
• NIFTY 50 (India): Up 0.42%.
• Bitcoin: Trading at $90,400.

This article was first published on Fortune.com.