Donald Trump’s escalating confrontation with the Federal Reserve has sent shockwaves through global markets, driving gold prices to a new all-time high as investors sought refuge from growing political risk in the world’s largest economy.
Gold prices rose to around $4,600 an ounce on Monday while silver hovered near record levels as fears grew about political interference in the Federal Reserve’s independence. The U.S. dollar weakened sharply and the dollar index fell 0.32 percent against a basket of major currencies.
The flight to safety followed comments from Jerome Powell, who said a criminal investigation into his behavior was part of an attempt to intimidate the central bank and undermine its ability to set interest rates independent of political pressure.
Despite the turmoil, Wall Street stocks posted slight gains. The S&P 500 rose 0.16 percent, the Dow Jones Industrial Average rose 0.17 percent and the Nasdaq climbed 0.26 percent. Bond markets were more choppy, with the yield on the benchmark 10-year U.S. Treasury note rising to 4.18 percent as investors questioned the long-term credibility of U.S. monetary policy.
In the UK, the FTSE 100 closed slightly higher while sterling strengthened to $1.34 against the dollar, reflecting the greenback’s overall weakness.
Market volatility soared and the VIX index posted its biggest gain since November as investors weathered the impact of an unprecedented standoff between the White House and the Fed.
Late Sunday, Powell confirmed that the U.S. Justice Department had issued grand jury subpoenas related to his testimony on a $2.5 billion renovation of the Fed’s Washington headquarters. In a rare and direct public rebuke, he warned that the investigation raised fundamental questions about whether monetary policy was shaped by economic facts or political compulsion.
In a joint statement, living former Fed chairs Alan Greenspan, Janet Yellen and Ben Bernanke called the move an “unprecedented attempt” to undermine the independence of central banks and warned that it was similar to practices in emerging markets with weaker institutions.
Trump, who appointed Powell during his first term, denied direct involvement in the subpoena but renewed his criticism of the Fed chair’s leadership. He is expected to name a successor soon, with Kevin Hassett and Kevin Warsh widely believed to be the main contenders.
Economists warn that the consequences could be profound. Analysts at Berenberg said if political influence were to dictate monetary policy, the US could see a repeat of 1970s-style inflation, while ING and Nomura warned that continued pressure on the Fed would pose a sustained downside risk to the dollar.
For companies and investors around the world, this incident has revived a familiar lesson: When trust in institutions falters, capital seeks safety. With US inflation remaining above target and political tensions heating up, markets appear poised for further volatility in the coming months.
