The "Sell America" Rekindled: Assessing the Structural Impact of a Political Assault on the Fed

The immediate trigger is a remarkable escalation. The Justice Department has opened a criminal investigation into Federal Reserve Chair Jerome Powell over his Senate testimony on the central bank's renovation project. This probe, overseen by a U.S. Attorney's Office led by a longtime ally of President Trump, is the latest salvo in a yearlong pressure campaign. It follows the president's repeated threats to fire Powell and his public attacks for resisting demands to slash interest rates.

Powell himself framed the action as a direct political intimidation tactic. In a rare, forceful video statement, he called the investigation "unprecedented" and explicitly linked it to his monetary policy decisions. He stated the threat of criminal charges is a consequence of the Fed setting rates based on economic evidence rather than presidential preference. This is a stark admission that the central bank's independence is now under direct political siege.

This shock rekindles a market dynamic that had already been sparked by earlier turbulence. The investigation arrives on the heels of the dollar's worst performance since 2017, a decline that reflected not just Fed rate cuts but a broader sense of economic unpredictability. That volatility was fueled by the same political currents: the highest tariffs in decades, a prolonged government shutdown, and now, an open conflict with the Fed. The core structural question is whether this signals a permanent erosion of institutional independence or a contained episode. For now, the market's "Sell America" sentiment finds a new, potent catalyst in the weaponization of the justice system against the nation's monetary authority.

Market Impact: Quantifying the Tactical Repricing

The political assault on the Fed has triggered a clear, immediate repricing in global financial markets. The tactical rekindling of the "Sell America" dynamic is now quantified in sharp moves across asset classes. When the news broke, the S&P 500 and Nasdaq opened lower, a direct signal of investor unease. More telling was the surge in Treasury yields, which climbed to multi-month highs, with the 10-year yield above 4.2% and the 30-year yield above 4.8%. This flight from bonds to higher yields reflects a market pricing in a diminished expectation for Fed policy stability and a potential rise in inflation risk.

This repricing is not confined to bonds. Foreign capital is actively exiting. The Treasury International Capital data for October shows a net TIC outflow of $37.3 billion, with a significant $19.2 billion in sales by foreign official holders, including central banks. This is a critical signal. When the institutions meant to provide stability and long-term demand for U.S. debt are selling, it underscores a loss of confidence in the dollar's safe-haven status. The dollar index itself weakened, falling to near its lowest level since early December, confirming the capital flight.

The immediate flight to safety was stark. In the aftermath, gold prices surged 2.6% and silver jumped 7%. This classic "risk-off" move, where investors flee to tangible assets, highlights the market's perception of heightened geopolitical and institutional risk within the U.S. The combination of falling equities, rising bond yields, a weaker dollar, and soaring precious metals paints a coherent picture: the DOJ investigation has successfully rekindled the "Sell America" sentiment, translating political pressure into concrete financial outflows and volatility.

The Structural Question: Is This a Permanent Erosion or a Contained Event?

The immediate market reaction is clear, but the structural question remains unresolved. This episode presents two competing scenarios for the future of U.S. asset attractiveness and the Fed's independence. The investigation's specific mechanics and its broader implications will determine which path dominates.

On one side, the setup raises serious concerns about a broader institutional credibility crisis. The probe is being overseen by a U.S. Attorney's Office led by a longtime ally of President Trump. This political alignment of the DOJ itself amplifies the perception that the investigation is a weapon of intimidation, not a neutral pursuit of justice. It risks creating a feedback loop where attacks on the Fed's independence are mirrored by attacks on the justice system's independence, further eroding the rule-of-law foundation that underpins global confidence in U.S. assets.

On the other side, the Fed's legal and operational structure remains intact. The investigation's specific focus is on whether Mr. Powell lied to Congress about the scope of the renovation project, a matter of testimony and spending records, not monetary policy decisions. This narrow technical focus may limit its direct, immediate impact on the Fed's ability to set rates. The central bank's tools and mandate are unchanged. Yet, the political pressure campaign that preceded this probe-threats to fire Powell, public attacks for rate resistance-has already been a material force in the market.

The key uncertainty lies in whether this episode accelerates a pre-existing trend. The dollar's worst performance since 2017 reflects a year of turbulence that included the same political currents. This investigation adds a new, potent catalyst to that trend. The critical test will be whether foreign investors, particularly central banks, view this as a contained event or a sign of permanent institutional fragility. The net TIC outflow of $37.3 billion in October, driven by sales from foreign official holders, suggests the latter is already gaining traction. If this outflow persists or accelerates, it would signal a structural shift in global capital allocation.

Moody's stable outlook for the U.S. credit rating provides a counterpoint to the fear narrative, affirming the country's fundamental economic strength. But that outlook does not negate the political risk premium now being priced into markets. The investigation has successfully rekindled the "Sell America" sentiment, translating political pressure into concrete financial outflows and volatility. Whether this is a contained tactical repricing or the opening salvo in a longer-term erosion of the dollar's dominance hinges on the durability of that political risk premium. For now, the market is pricing in a higher cost of doing business in the U.S., and that premium may prove sticky.

Catalysts and Risks: What to Watch for the Thesis

The emerging narrative of a political assault on the Fed has set a clear path for market evolution. The coming weeks will test whether this is a contained tactical repricing or the start of a longer-term erosion of the dollar's dominance. Several key catalysts will provide the data to confirm or contradict the thesis.

First, the scheduled release of Treasury TIC data for November 2025 on January 15, 2026, is a critical near-term event. October's data already showed a net TIC outflow of $37.3 billion, with a significant $19.2 billion in sales by foreign official holders. A continuation or acceleration of these outflows, particularly from central banks, would be the most direct evidence of sustained capital flight and a deeper, structural loss of confidence. It would signal that the "Sell America" sentiment is moving from tactical to strategic.

Second, political developments on the Senate Banking Committee will be a leading indicator of institutional fallout. The stance of key figures like Senator Thom Tillis is already a signal. His pledge to oppose any Trump nominees to the central bank until "this legal matter is fully resolved" introduces a new layer of uncertainty. The committee's future actions-whether it proceeds with confirmations, delays them, or initiates its own investigations-will determine the stability of the Fed's leadership and its perceived independence. Further actions by the DOJ, especially if they appear to target the Fed's policy-making process rather than the renovation testimony, would dramatically escalate the risk.

Third, the trajectory of the U.S. dollar itself is a real-time barometer. The currency's worst performance since 2017 last year reflected a year of turbulence. A sustained decline from here, particularly if it breaks key technical levels, would confirm that the political risk premium is becoming embedded in the currency's value. This would make imports more expensive and could feed into broader inflationary pressures, complicating the Fed's mandate further.

Finally, the spread between U.S. and other developed-market sovereign debt yields will reflect the evolving political risk premium. If the yields on U.S. Treasuries continue to climb relative to German Bunds or Japanese Government Bonds, it will show that investors are demanding a higher return for holding the dollar, even as the Fed cuts rates. This divergence would be a clear sign that political instability is now a more significant factor than monetary policy in pricing U.S. debt.

The investment implication hinges on which catalysts gain weight. If foreign outflows persist, political gridlock deepens, and the dollar continues to weaken, the thesis of a structural shift gains force. This would mean higher costs for U.S. companies and consumers, a more volatile investment environment, and a potential long-term repositioning of global capital. Conversely, if the TIC data stabilizes, political pressure eases, and the dollar finds a floor, the episode may be remembered as a sharp but contained spike in risk. For now, the market is watching these signals to decide whether the "Sell America" dynamic is a fleeting reaction or the beginning of a new era.