U.S. stocks, Treasuries and the dollar all fall on "Powell subpoena probe"

"‘Sell America’ wave as April tariff shock, peak Fed pressure revisited"

Gold rises nearly 2% as a risk hedge

U.S. stocks, Treasuries and the dollar all fell on the 12th (local time) after the U.S. Department of Justice sought to question Federal Reserve Chair Jerome Powell under subpoena.

The Dow Jones Industrial Average, which opened down about 0.8%, was down 0.4% at around 10:05 a.m. Eastern. The S&P 500 and Nasdaq, which had opened down more than 0.6%, pared losses to 0.1% by around 10:05 a.m.

The dollar weakened on concerns over a diminished Fed independence. The ICE U.S. Dollar Index fell 0.3% from the previous session to 98.83. Gold, seen as a hedge against a weakening of Fed independence, rose nearly 2% on the day, topping $4,600 per ounce.

Treasury yields turned higher on fears that a less independent Fed would hesitate to curb inflation. The 10-year Treasury yield rose 3 basis points (1bp=0.01%) to 4.19%.

Bank stocks fell after President Trump proposed capping credit-card interest rates at 10% for one year. Citigroup slid 3% and Capital One shares fell 6%. Critics warned the move could backfire by restricting lending and hurting profitability for banks as well as consumers.

The CBOE Volatility Index, often called Wall Street’s fear gauge, rose to 15.5 early in the session from the prior day. According to CNBC, traders added hedges in the options market following news of the probe into Powell.

Powell said in a video statement late on the 11th that he had received a grand jury subpoena indicating potential criminal charges over testimony related to a renovation of the Fed’s office building. Powell said the investigation is an attempt by President Trump to influence the central bank’s monetary policy and that he would not yield to such pressure.

Jay Woods, chief market strategist at Freedom Capital Markets, said, "The market has seen this before, but it doesn’t like it." He added, "This isn’t about Powell per se—it’s about Fed independence, so the news triggers selling."

Krishna Guha, Evercore ISI’s head of global policy and strategy, said it could spark a ‘Sell America’ move similar to when the April tariff shock and threats over Powell’s position as Fed chair peaked. He noted, "As a clear risk-off signal, the dollar, Treasuries and U.S. equities would fall, while gold and other safe-haven assets would rise." He added, however, that "with four months left in his term, Powell has pledged to carry out his duties as before and is now more accustomed to Trump’s pressure, so there is also a possibility it won’t lead to a full-blown rout."

Kim Jeong-a, contributing reporter kja@hankyung.com