On Fears of Fed Independence, Stocks and the Dollar Sink

U.S. stock futures and the dollar dropped significantly as investors responded to speculation that President Donald Trump may attempt to remove Federal Reserve Chair Jerome Powell from his post. The S&P 500 futures fell 1%, while the dollar index plunged to its lowest level in 15 months. These moves come as Wall Street prepares to resume trading after the Easter holiday. Meanwhile, gold surged past $3,390 an ounce, reflecting a flight to safety amid the political uncertainty.

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The market reaction followed comments made on Friday by Kevin Hassett, head of the National Economic Council, who stated that Trump is exploring whether he has the authority to dismiss Powell. This development stems from the president's increasing dissatisfaction with the Federal Reserve for not cutting interest rates. Trump recently voiced his frustration on social media, declaring that Powell’s “termination cannot come fast enough!”

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Such a direct challenge to the Fed’s leadership is shaking investor confidence and calls into question the independence of the central bank, a cornerstone of U.S. economic stability.

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Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp., cautioned that any attempt to remove Powell would send a disturbing message to the markets. “Frankly, firing Powell stretches belief,” Wong remarked. “If the Fed’s credibility comes under scrutiny, it could severely damage trust in the dollar.”

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As a result of the rising uncertainty, haven currencies such as the Japanese yen, the euro, and the Swiss franc rallied. At the same time, Brent crude oil prices fell as much as 2%, dipping below $67 per barrel. With European markets largely closed due to the holiday, the full extent of global investor reaction may not be visible yet.

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The Bloomberg Dollar Spot Index declined 0.8% on Monday, with all Group-of-10 currencies gaining ground against the greenback. The stronger yen in particular put pressure on Japanese equities, pushing the Nikkei 225 index down 1.3%.

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The debate over central bank independence intensified as Chicago Fed President Austan Goolsbee emphasized its importance. Speaking on CBS’s Face the Nation, Goolsbee stated, “There’s virtual unanimity among economists that monetary independence from political interference is crucial. The Fed — or any central bank — must be able to perform its responsibilities without political pressure.”

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Adding to the chorus of concern, French Finance Minister Eric Lombard warned that dismissing Powell would undermine the credibility of the U.S. dollar and create broader instability for the U.S. economy.

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Signs of a shift in global investment strategies are also emerging. Deutsche Bank reported that some Chinese investors have trimmed their holdings in U.S. Treasuries, opting instead for safer European assets. Lillian Tao, the bank’s head of China macro and emerging market sales, noted that investors are increasingly turning to European high-grade bonds, Japanese government securities, and gold as alternatives.

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Meanwhile, movements in the Treasury market reflect growing anticipation of potential interest rate cuts. The yield curve steepened, with short-term two-year notes rallying while longer-term maturities declined. This suggests that investors expect the Fed may be forced to cut rates sooner rather than later and are expressing caution toward longer-term U.S. financial assets.

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In corporate news, Tesla Inc. saw its shares drop by 3% in pre-market trading. With the electric vehicle maker set to release its earnings on Tuesday, concerns are growing about the company’s performance.

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Wedbush Securities analyst Dan Ives described Tesla as being in a “code red” situation and called on CEO Elon Musk to refocus his attention on the company. Ives even suggested that Musk step away from his role at the Department of Government Efficiency to prioritize Tesla’s challenges.

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The current market turbulence reflects growing fears that political interference in monetary policy could destabilize the U.S. economy and global financial systems. Whether or not Trump actually proceeds with trying to fire Powell, the mere possibility is enough to unsettle investors, boost safe-haven assets, and prompt a reallocation of capital away from U.S. markets.

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As Wall Street reopens, traders will closely watch developments in Washington for any additional signs of conflict between the White House and the Fed. For now, the markets are bracing for increased volatility and growing uncertainty surrounding the future of U.S. economic policy.

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