Global financial markets are facing a fresh wave of volatility, triggered by a series of aggressive interventions from US President Donald Trump and a startling Justice Department investigation into Federal Reserve Chairman Jerome Powell. The developments have sparked fears over the central bank's independence and threaten to derail the recent broad-based market surge known as the 'everything rally'.
Fed Chairman Powell Faces Unprecedented Probe
The turmoil began when Fed Chair Jerome Powell confirmed late on Sunday that the central bank had received grand jury subpoenas from the Justice Department. The probe is related to his testimony to Congress about the unfinished refurbishment of the Fed's Washington headquarters. In a highly unusual video statement, Powell suggested a political motive, stating the investigation was a consequence of the Fed setting interest rates to serve the public, not presidential preferences.
"This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation," Powell asserted. The timing is critical, coming just four months before the end of his eight-year term in May 2026. President Trump, in a Sunday interview with NBC, claimed to know nothing about the investigation but has previously threatened to sue Powell for "gross incompetence."
The 'Everywhere President' Launches Multi-Front Assault
The Fed probe is merely the latest target in a flurry of actions from the White House. In recent days, President Trump has made statements on government-controlled mortgage entities Fannie Mae and Freddie Mac, proposed a cap on credit card interest rates at 10%, and pushed for a massive $500 billion increase in defence spending.
His foreign policy stance has also intensified, following the removal of Venezuela's Nicolás Maduro with threats to support anti-regime protesters in Iran. He has also reiterated the controversial claim that the US should control Greenland. This barrage of domestic and international moves from the 'everywhere president' is now directly challenging the stability of financial markets.
Market Fallout: Dollar Tumbles, Gold Hits Record High
The immediate market reaction was sharp and decisive. The US dollar index fell 0.33%, marking its steepest drop in three weeks, to trade at 98.81. Investors rushed to hedge against risks to the Fed's autonomy. Gold prices soared to a fresh record high, while Treasury yields retreated.
Equities also faced pressure, with the S&P 500 retreating nearly 0.8% from its Friday peak and the Dow Jones Industrial Average poised for a triple-digit decline. FX strategist Francesco Pesole of ING noted the combined drop in dollar, equities, and Treasuries reminiscent of the 'Sell America' trade from last spring.
"The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial, and the bond market will be the most important barometer," Pesole said. Benchmark 2-year Treasury note yields held at 3.53%, while 10-year yields slipped 3 basis points to 4.2%.
The week ahead remains fraught with potential triggers. Investors are bracing for key inflation, retail sales, and industrial production data, awaiting a Supreme Court decision on Trump's use of emergency powers for tariffs, and looking to fourth-quarter bank earnings for direction. As Pesole summarised, markets are now in a "wait-and-see mode", trying to assess the real-world implications of a president testing the limits of economic orthodoxy and institutional independence.
