'Sell America' trade returns as Trump's DOJ probes Powell

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Stock futures and the U.S. dollar slumped early Monday while safe haven assets like gold rallied, in what analysts called a return of the “Sell America” trade after the revelation that the Department of Justice launched a criminal investigation into Federal Reserve Chair Jerome Powell.

S&P 500 futures were down 0.6% Monday morning and the dollar slumped almost 0.5% against the euro. Gold rose to a new record high and briefly broke above $4,600 an ounce for the first time ever. The moves came as economists voiced concerns that the DOJ's probe into Powell will erode the central bank’s independence.

“Obviously there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns,” Goldman Sachs’ chief economist Jan Hatzius warned at a conference Monday, in remarks reported by Reuters.

“I have no doubt that [Powell] in his remaining term as chair is going to make decisions based on the economic data and not be influenced one way or the other, cutting more or refusing to cut on the back of data that could push in that direction,” he added.

Powell said in a video statement Sunday evening that the DOJ had served the Fed with grand jury subpoenas on Friday related to testimony that Powell delivered to the Senate Banking Committee in June, regarding ongoing renovations of the Fed's aging headquarters in Washington. The investigation marks a staggering escalation of President Donald Trump's almost year-long campaign to strong-arm the central bank into dramatically lowering interest rates.

“We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI.

The “sell-America trade” has returned, he added, “similar to that in April last year at the peak of the tariff shock and earlier threat to Powell’s position as Fed chair, with global investors applying a higher risk premium to U.S. assets.”

Meanwhile, Sen. Thom Tillis, a North Carolina Republican who sits on the Senate Banking Committee, opposed the investigation, providing a possible headache for Trump, who is expected to nominate his choice for Powell’s successor as Fed chair this month. Tillis said he would oppose Trump’s Fed nominees until the issue is resolved.

“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Tillis said in a statement. “It is now the independence and credibility of the Department of Justice that are in question.”

“I will oppose the confirmation of any nominee for the Fed — including the upcoming Fed Chair vacancy — until this legal matter is fully resolved,” Tillis added.

In an NBC News interview Sunday, Trump said he did not have any knowledge of the DOJ’s investigation into the central bank.

The DOJ did not immediately respond to a request for comment.