Equities and Treasuries Tumble Amid Widespread Pullback From US Holdings Markets Recap

Equities and treasuries tumble on Monday, Wall Street experienced a sharp downturn, with selling pressure mounting across equities, long-term Treasury securities, and the U.S. dollar. This financial turmoil was exacerbated by President Donald Trump’s scathing criticism of Federal Reserve Chair Jerome Powell’s interest rate strategy, spooking investors already concerned about global trade tensions.

Stock and Dollar Slump Despite Trade Reassurances

While Trump attempted to ease concerns about tariff negotiations, markets remained unconvinced. The S&P 500 and major U.S. indices plummeted by around 2.5% in muted trading. Concurrently, the U.S. dollar fell to its weakest point in 15 months, with the 10-year Treasury yield dropping to 4.4%. As a result, investors flocked to safe-haven assets. Gold surged to a new record above $3,400 per ounce, and the Swiss franc rose nearly 1% against the dollar.

Credit Markets Also Feel the Strain

The turbulence spread to credit markets as well. The cost of insuring investment-grade bonds against default reached its highest level in over a week. Amid the market uncertainty, two out of three companies looking to issue new bonds postponed their plans, while only American Express Co. went ahead with its sale.

Trump Intensifies Fed Criticism on Social Media

Trump continued his verbal assault on the Federal Reserve, declaring on Truth Social that inflation was “virtually nonexistent” and urging the Fed to implement “preemptive cuts.” This came despite the latest inflation readings remaining above the central bank’s 2% target. Investors are awaiting a fresh data release next week to gauge the trajectory of inflation.

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Concerns Over Fed’s Autonomy and Potential Removal of Powell

White House National Economic Council Director Kevin Hassett revealed that Trump is exploring the possibility of removing Powell, stirring fears about the Federal Reserve’s autonomy amid growing political pressure. Michael Brown, senior research strategist at Pepperstone, warned that firing Powell could lead to significant market volatility and capital flight from U.S. assets, especially as the global trend of de-dollarization gains momentum.

Hedge Fund Leaders Warn of Potential Dollar Crisis

Hedge fund leaders are voicing increasing concerns over the U.S. dollar’s future as the global reserve currency. Paul Singer, founder of Elliott Investment Management, reportedly discussed the likelihood of the dollar losing its reserve status during a private meeting in Abu Dhabi.

Criticism of Trump’s Approach to the Fed

Critics argue that Trump’s harsh rhetoric risks politicizing U.S. monetary policy. Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp, warned that undermining the Fed’s credibility could have lasting damage on confidence in the dollar.

Experts Stress the Importance of Fed Independence

Claudia Sahm, Chief Economist at New Century Advisors, emphasized the severe consequences of removing Powell from office. She warned that such an action could destabilize financial markets and diminish the Fed’s credibility. Chicago Fed President Austan Goolsbee also voiced concerns over this issue. He asserted that political interference in monetary policy undermines the central bank’s ability to perform its critical role.

Legal Obstacles to Dismissing Powell

Legal experts agree that removing the Fed chair is a complex process. Powell has stated he would not step down. Even if the president requests it, he remains firm in his stance. This adds another layer of difficulty to any potential move.