With Fed in the crosshairs, Trump the ‘everywhere’ president tests the ‘everything’ rally

Powell said the central bank received notice of grand jury subpoenas from the Justice Department related to his testimony to congressional lawmakers regarding the unfinished refurbishment of the Fed’s headquarters in Washington.

Powell forcefully suggested a political motive behind the probe, which comes just four months ahead of the end of his eight-year term as Fed chair in May and extends a series of attacks on central bank policy from the White House. Trump has yet to formally decide on Powell’s replacement.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president," Powell said late Sunday in an unprecedented video statement.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation," he added.

Trump claimed not to know “anything about" the Justice Department investigation during an interview Sunday with NBC, but he has made many direct statements regarding the Fed’s rebuilding project and repeated his threat to sue the chairman for “gross incompetence" earlier this month.

The Fed is merely the latest in a flurry of targets of the president’s ire of late, following statements regarding mortgage bond purchases from government-controlled entities Fannie Mae and Freddie Mac, an attempt to cap credit card interest rates at 10%, and a push for a massive $500 billion increase in defense spending.

He’s also become far more active in foreign policy, following on from his removal of former Venezuelan leader Nicolás Maduro with a threat to support anti-regime protesters in Iran. He’s also repeated his insistence that the U.S. should control Greenland.

The collective actions of the “everywhere" president, however, are set to challenge the s0-called everything rally, which has seen stocks rise firmly across the board this month with gains for oil, precious and industrial metals, and the U.S. dollar.

The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, slumped 0.33%, the most in three weeks, to change hands at 98.81 in early Monday dealing as investors looked to hedge the risk of a sustained attack on the Fed.

“The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial, and the bond market will be the most important barometer" said Fransesco Pesole, FX strategist at ING.

Benchmark 2-year Treasury notes yields were holding steady at 3.53%, while 10-year note yields slipped 3 basis points to 4.2%.

Early indications suggest a big pullback for stocks, as well, with the S&P 500 retreating nearly 0.8% from its Friday all-time peak and the Dow Jones Industrial Average poised for a triple-digit decline.

The president’s actions could loom large this week, as well, as investors look for direction on the fourth-quarter earnings season from the banking sector, eye a potential Supreme Court decision on Trump’s use of emergency powers to justify tariffs, and brace for a key reports on inflation, retail sales, and industrial production.

“The combined drop in the dollar, equities and Treasuries was a reminiscence of the ‘sell America’ days of last spring," said Pesole at ING. “It’s wait-and-see mode now as markets try to assess the effective implications of all this."

Write to Martin Baccardax at martin.baccardax@barrons.com