Push on Fed may affect investing

“Sell America” sentiment has rippled through markets after the Trump administration escalated its attacks on the Federal Reserve, fanning concerns over the central bank’s autonomy in setting interest rates.

- BY RUTH CARSON, ABHISHEK VISHNOI AND WINNIE HSU

The dollar, Treasurys and equity futures slid after Chair Jerome H. Powell said the threat of a criminal indictment was a consequence of a disagreement over monetary policy. Although the declines were relatively small, the hot-button issue of the Fed’s independence and the implications for U.S. markets resurfaced in investor debates.

“Any development that raises questions about the Fed's independence adds uncertainty around U.S. monetary policy,” said Gary Tan, portfolio manager at Allspring Global Investments, which oversees more than $600 billion. “This is likely to reinforce existing trends of diversification away from the dollar and increase interest in traditional hedges such as gold.”

On Sunday evening, Powell said the U.S. central bank had been served grand jury subpoenas from the Justice Department that were related to his congressional testimony on ongoing renovations of the Fed’s headquarters. It’s the latest in a series of confrontations, which include efforts to fire Gov. Lisa Cook and repeated calls for aggressive interest rate cuts.

“To characterize the events as putting the Fed independence discussion into uncharted waters would be an understatement,” Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, wrote. “We remain skewed toward higher yields in the near-term.”

Bloomberg's dollar gauge fell 0.2%, the most since Dec. 24. The Standard & Poor’s 500 index fell as much as 0.5% in early trading, before paring its loss to trade little changed at 9:55 a.m. in New York. Ten-year U.S. Treasury yields advanced two basis points to 4.19% while yields on the 30-year bond rose three basis points to 4.84%.

Some strategists warned that the selloff may deepen if tensions continue to escalate.

JPMorgan Asset Management flagged the risk of a steeper Treasury yield curve, meaning long-term rates would rise more than shorter ones, on expectations of more aggressive rate cuts.