Donald Trump's 'intimidation' of Powell tests Fed credibility, risking investor exit from U.S. assets

The transgression probe into Federal Reserve Chair Jerome Powell is investigating the U.S. cardinal bank's independency again and reinforcing the presumption among planetary investors that they request to diversify distant from U.S. assets.

"That's what seems to beryllium transpiring this morning," Julien Lafargue, main marketplace strategist astatine Barclays Private Bank, told CNBC's "Europe Early Edition" connected Monday.

Futures connected the S&P 500, Dow Jones Industrial Average and the Nasdaq each moved lower connected Monday aft the Department of Justice opened an probe into the $2.5 cardinal renovation of the Fed's headquarters.

Powell called the probe "a effect of the Federal Reserve mounting involvement rates based connected our champion appraisal of what volition service the public, alternatively than pursuing the preferences of the President," successful a video statement tweeted by the Fed's X relationship connected Sunday. Donald Trump has antecedently accused Powell of being excessively dilatory to chopped rates, which proceed to measurement connected consumers, peculiarly successful accessing housing.

Lafargue called the probe "a astonishing move," fixed that a caller Fed seat volition beryllium announced successful May erstwhile Powell's chairmanship of the Fed is owed to conclude.

One expert told CNBC the probe was Trump trying to intimidate Powell with "the Maduro option": a informing that helium could beryllium removed by different means, referring to however the Venezuelan president, Nicolás Maduro, was seized successful a U.S. subject onslaught past weekend.

U.S. 10-Year Treasurys.

It again places cardinal slope independency — a cardinal contented for investors passim Trump's tenure — successful the spotlight, with attraction turning to the U.S. 10-year output and the imaginable for a broader resistance connected hazard appetite into 2026.

"I deliberation it volition bring distant that sentiment that investors request to diversify distant from U.S. assets," Lafargue observed. "It volition perchance make immoderate unit connected the agelong extremity of the output curve implicit time."

Nabil Milali, multi-asset and overlay portfolio manager astatine Edmond de Rothschild Asset Management, said the president's strategy is "paradoxically counterproductive."

"By questioning the Fed's independence, helium is fueling upward unit connected rates, peculiarly astatine the agelong extremity of the curve, which we proceed to debar successful our allocation," Milali told CNBC successful an email.

Looking to wherever investors whitethorn tilt their portfolios, Lafargue pinpointed China arsenic "an progressively fashionable trade," highlighting the state arsenic a continued beneficiary of the AI narrative.

While investors are little optimistic astir the eurozone, determination are pockets of opportunities — peculiarly astir Germany's infrastructure and defence stimulus, said Lafargue, adding determination whitethorn beryllium a rebound successful healthcare, worldly and vigor successful the U.K.

While helium said tensions betwixt Trump and the Fed were "not a caller narrative," helium added investors needed to recognize "how rapidly this happening tin play out." "We've heard this U.S. medication repeatedly critique the Fed… it whitethorn besides accelerate the information of the caller Fed seat perchance astatine Davos," helium added.

Milali said the latest spat raises the hazard that Powell's successor "will person small credibility successful the eyes of investors", and volition yet beryllium taxable to President Trump's directives.

"The Trump administration's latest onslaught connected the Fed confirms that the extremity of challenging the cardinal bank's independency has ne'er been abandoned," Milali added.

Steve Englander, caput of planetary G10 FX probe and North American macro strategy astatine Standard Chartered, besides warned astir the gait of the administration's actions.

"The contented is the velocity with which Trump is trying to bash it," helium told CNBC's "Squawk Box Europe" connected Monday.

"Obviously, helium has the midterms close successful beforehand of him. He wants to get involvement rates down. I deliberation he's trying to intimidate the Fed — either by giving Powell the Maduro enactment of retiring and this each goes away, oregon by trying to get him off.

"Unlike with Lisa Cook, this clip there's an existent accusation, arsenic opposed to conscionable worldly you're throwing into the air."

— CNBC's Tasmin Lockwood contributed to this report.