Trump's Criticism of Fed Sparks 3% Stock Market Drop, Dollar Plummets 15-Month Low

In response to escalating criticism from President Donald Trump on social media, a wave of asset sell-offs in the United States has intensified. Concerns over the future independence of the Federal Reserve have led to declines in the U.S. stock market, the dollar, and longer-term U.S. Treasury bonds.

Trump's assurances about progress in tariff negotiations have done little to stem the market decline. The S&P 500 Index and other major stock indices fell by nearly 3%, while the dollar index dropped to its lowest level in 15 months. The price of the benchmark 10-year U.S. Treasury bond fell, with yields approaching 4.4%. As investors fled U.S. securities, the price of safe-haven assets rose. Gold prices surged to a new all-time high of over $3,400 per ounce, and the Swiss franc against the dollar rose by more than 1%.

This weakness has also spread to the U.S. credit market. In the derivatives market, the cost of default protection for a basket of high-grade credit securities rose to its highest level in more than a week. On Monday, three investment-grade companies considered issuing bonds, but two decided to suspend the issuance after seeing the market conditions, with only American Express proceeding with the bond sale.

Trump has intensified his attacks on the Federal Reserve Chairman on the "Truth Social" platform, insisting that there is "actually" no inflation and that it is time for a "preemptive rate cut." The latest reading of the Fed's preferred inflation gauge remains above the central bank's target, with new data to be released next week.

Kevin Hassett, the chairman of the National Economic Council, said last Friday that Trump is considering whether he has the authority to fire Powell. These remarks have raised new questions about whether the Fed can maintain its long-standing independence as the president increasingly expresses his dissatisfaction with the Fed's failure to cut rates more quickly.

"If Powell is fired, the initial reaction would be to inject massive volatility into the financial markets, and it could lead to the most severe sell-off of U.S. assets that we can imagine," said Michael Brown, senior research strategist at Pepperstone. "Not only is the Fed's independence clearly under threat, but the possibility of de-dollarization and a shake-up of U.S. hegemony is becoming increasingly real."

This concern has also been echoed by hedge fund elites. According to those present, Paul Singer, the founder of Elliott Investment Management, recently warned at a private event in Abu Dhabi that the dollar could lose its reserve currency status.

Christopher Huang, a currency strategist at Oversea-Chinese Banking Corp, said that accusing the Fed of politicizing U.S. monetary policy poses a risk that will unsettle the market.

"Frankly, firing Powell is hard to believe," Huang said. "If the Fed's credibility is called into question, it could seriously undermine confidence in the dollar."

Austin Goolsbee, president of the Federal Reserve Bank of Chicago, warned against attempts to weaken the central bank's independence. "Economists almost unanimously agree that monetary policy free from political interference — the Fed or any central bank being able to perform its duties independently — is very important," Goolsbee said on CBS's "Face the Nation" on Sunday.

Legal scholars have stated that the president cannot easily fire the Federal Reserve Chairman, and Powell has previously stated that he would not resign if Trump asked him to.

Amid concerns about a potential financial recession, Trump's tariff offensive continues to put pressure on the market. "The global economy is being hit by the U.S. trade war, and we believe this will cause enough economic shock to threaten the expansion of the U.S. and global economies," wrote Bruce Kasman, chief economist at Morgan Stanley. "While pointing out the increased risk of a global economic recession, we also emphasize that this outcome is not likely to happen immediately."

The Bloomberg Dollar Spot Index fell 0.7% on Monday. All G10 currencies against the dollar rose. The strengthening of the yen weighed on the Japanese stock market index, with the Nikkei 225 Index falling 1.3%. The yen, euro, and Swiss franc all rose in value. The price of U.S. West Texas Intermediate (WTI) crude oil fell by more than 2% to below $64 per barrel. Most European stock markets were closed for public holidays.

Deutsche Bank stated that investors are shifting their investments out of the U.S. The bank's head of China macro and global emerging market sales, Lilian Tao, said that European high-quality bonds, Japanese government bonds, and gold could be potential alternatives to U.S. Treasury bonds for investors.

Tesla's stock price fell 7.1%. Dan Ives, an analyst at Wedbush Securities, said that the company is facing a "red alert" moment as it prepares to release its earnings on Tuesday, and Elon Musk should step back from his work in the government efficiency department and focus on Tesla's business.