As global economic uncertainty deepens, investors are facing a fresh wave of market volatility, this time fueled by political friction at the highest levels of U.S. economic leadership. On Monday, U.S. stocks and the dollar fell sharply amid growing concerns that President Donald Trump may follow through on his long-standing threat to fire Federal Reserve Chairman Jerome Powell.

Market Jitters Over Central Bank Independence

While legal experts argue that firing a Fed Chair is not an easy task – and Powell himself has publicly stated he would not resign under pressure – the mere speculation is shaking investor confidence. The dollar fell by as much as 1%, reaching its lowest level since late 2023, while U.S. equities opened the week deep in the red.

The selloff intensified following remarks from White House economic adviser Kevin Hassett, who confirmed that Trump is “studying the matter” of potentially removing Powell. This, combined with the president’s renewed public call for interest rate cuts, has added a new layer of instability to an already uncertain outlook.

Dollar’s Decline Signals Shift in Global Confidence

International markets reacted swiftly. The Bloomberg Dollar Spot Index saw one of its steepest declines in recent months, while the euro surged to a three-year high and the yen gained ground, reflecting a global rotation away from U.S. assets.

Foreign exchange experts suggest the erosion of central bank independence could have long-lasting consequences.

Recession Fears Resurface

With Trump’s aggressive tariff policies already dragging on U.S. growth and contributing to inflation uncertainty, the pressure on Powell risks compounding the situation. Former New York Fed President Bill Dudley warned that despite market hopes for three rate cuts this year, the Fed is likely to proceed with caution given the mixed signals on inflation and growth.

The U.S. yield curve also reflected deepening fears. The spread between two-year and 30-year Treasury yields widened for a record ninth straight week, indicating concerns about long-term inflation and weak growth prospects.

Wall Street Turns Cautious

Several major financial institutions have downgraded their outlooks for U.S. equities. Citigroup, Bank of America, and BlackRock all pointed to weakening fundamentals and diminishing investor faith in “U.S. exceptionalism.”

Conclusion: U.S. Market Status in Question

With Trump escalating political pressure on the Federal Reserve, the U.S.’s reputation as a stable economic anchor is under threat. Even if Powell remains in place, the optics of political interference are undermining confidence in U.S. institutions – potentially reshaping global investment flows for the months to come.

As markets continue to digest these risks, one thing is clear: the battle for control of U.S. monetary policy is no longer just a domestic issue – it’s a global concern.