US President Donald Trump’s fresh attack on the Federal Reserve seems to have revived the ‘Sell America’ sentiment in the stock market and strategists and market experts are warning that the selloff may deepen over time if the tiff between the government and the central bank snowballs.Market sentiment turned cautious on Monday as a growing ‘Sell America’ narrative gained traction following intensified criticism of the Federal Reserve by the Trump administration, reviving worries about the central bank’s independence in determining interest rates.
The dollar, Treasury bonds and US equity futures all edged lower. Although the moves were modest, the renewed focus on the Fed’s autonomy and its broader implications for financial markets unsettled investors.
Trump vs Powell: What’s the fuss about?
US Fed Chair Jerome Powell said on Sunday evening that the central bank had received grand jury subpoenas from the Justice Department linked to his testimony before Congress regarding renovation work at the Fed’s headquarters. The episode marks another flashpoint in a series of confrontations that have included attempts to remove Governor Lisa Cook and repeated demands for sharp interest rate cuts.Trump has repeatedly urged the Federal Reserve to reduce interest rates more aggressively to stimulate growth and lower government borrowing costs. In contrast, Fed policymakers have remained cautious, citing inflation risks. Paul Volcker, appointed Fed chair in 1979, is widely credited with taking tough measures to rein in inflation, a problem many believe had been allowed to worsen after the central bank yielded to pressure from then President Richard Nixon.Speaking to NBC News on Sunday, Trump said he was unaware of any Justice Department investigation involving the Federal Reserve.Hebe Chen, senior market analyst at Vantage Global Prime Pty., said the investigation involving Powell currently appears to be “more smoke than fire,” though she cautioned that its durability remains uncertain. “The longer-term and more deeply embedded consequences could be far more significant,” she added.
Why are markets wary?
At the heart of investor unease is the extent to which the US president can, or should, exert influence over monetary policy, an area that has largely remained shielded from political intervention for decades. This has revived questions over whether global investors should scale back exposure to US assets and the dollar, echoing concerns that swept markets last April after President Donald Trump announced blanket tariffs.“Any development that raises questions about the Fed’s independence adds uncertainty around US monetary policy,” said Gary Tan, portfolio manager at Allspring Global Investments, which manages more than $600 billion in assets according to a Bloomberg report. “This is likely to reinforce existing trends of diversification away from the dollar and increase interest in traditional hedges such as gold.”According to Bloomberg, Ian Lyngen, head of US rates strategy at BMO Capital Markets wrote in a note: To characterize the events as putting the Fed independence discussion into uncharted waters would be an understatement. We remain skewed toward higher yields in the near-term.Market strategists cautioned that the recent decline could intensify if political and policy frictions worsen. JPMorgan Asset Management highlighted the possibility of a sharper steepening in the US Treasury yield curve, where longer-dated yields rise faster than short-term rates, driven by expectations of deeper interest-rate cuts. Lombard Odier warned that both the dollar and Treasuries could face sustained pressure, while Invesco Asset Management noted that assets outside the US, including European and Asian equities, appear relatively more attractive.“This is a bad time to be worrying about Fed independence for the market,” said Bhanu Baweja, chief strategist at UBS Investment Bank, who added that US inflation is expected to pick up in the months ahead. “The one common theme for this year seems to be not just a weaker dollar, but equity volume going higher,” he was quoted as saying by Bloomberg.The latest developments risk reviving the “Sell America” theme, according to Gerald Gan, chief investment officer at Singapore-based Reed Capital Partners. He said the situation reflects an administration intent on rebuilding public support ahead of the midterm elections, even if that comes at the cost of weakening institutional credibility.US financial assets have faced similar pressure before. Last year, markets were jolted after President Donald Trump unexpectedly unveiled sweeping global tariffs, triggering sharp volatility. The subpoena involving the Federal Reserve adds to concerns that US assets are losing appeal, said David Chao, global market strategist at Invesco Asset Management, which manages over $2 trillion. He argued that the US is not only retreating behind what he described as “Fortress America” policies, but is also adopting a more aggressive stance that unsettles investors.Others urged restraint, noting that the dollar’s entrenched status as the world’s primary reserve currency, the depth and liquidity of the Treasury market, and the artificial intelligence-driven momentum in equities could limit the downside and even create buying opportunities. “Independence is always a concern, but we will monitor developments and respond once the economic implications become clearer,” said Marvin Loh, senior macro strategist at State Street in Boston.Even so, pressure linked to the ‘Sell America’ narrative is unlikely to fade.
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