The “sell America” theme is everywhere now

Outlook

Today we get the Richmond Fed and several speeches by regional Fed heads.

In case you didn’t notice—the US-Bund yield spread widened in the US’ favor and the dollar tanked by over 1% to the lowest against the euro in three years. This is backwards. A rising favorable spread “should” be dollar-positive.  It demonstrates that capital flight is in progress. A small contribution to that theme—the FT reports Japanese investors dumped some $20 billion of “foreign debt.” This is the safe haven impulse at work.

The top Bloomberg headline last evening was “Markets Are Discovering the Real Trump Trade Is ‘Sell America.”’ CNN headline: “Trump’s trade war is pushing investors away from America .” No, it’s not the trade war. It’s the man himself and all his statements and actions. To call Powell a “major loser” because Trump wants a rate cut to offset his own tariff policy effects is ridiculous on the face of it. 

The “sell America” theme is everywhere now. It arises not only from the stupid and mismanaged tariff war but also in equal weight the threat of Trump firing Fed chief Powell. The excellent Authers yesterday laid it all out in Bloomberg, and concludes with this:

“If the White House is serious about finding a better way to balance the Fed’s needs for independence and democratic accountability, it has 12 months to consult, and majorities in Congress to make changes. That is a clear and responsible course of action to make significant reforms with a minimum of market upset. If, as it appears, this is more of a personal vendetta, the administration could instead provoke an epic financial crisis by firing Powell now.”

And Authers wrote his article before Trump set off another firestorm. Nobody doubts for a second that firing Powell would send the bond market into a downward spiral it would be near-impossible to stop. Prices would tank and yields would rise to 5-6-7% if not more, or if not a forced shut-down. The dollar would crash against everything.

As with the tariff pause that (sort of) fixed thing last time, Trump will have to say he wasn’t serious about firing Powell. It will be a lie, of course, but it would probably work just because a real termination would be too horrible to contemplate. The WSJ writes today that Trump is setting it up for Powell to be blamed in we get a recession. This sounds right, since narcissists do not take responsibility for their own actions.

Who might intervene to get Trump to back down? The TreasSec is missing in action. Congress lacks guts. And the tech bros and Wall Streeters are afraid of retaliation. Where is Jamie Dimon when you need him? 

The only other alternative is finding a “cause” that the Supreme Court would not accept. The court is already considering whether Trump can fire the heads of other legally independent agencies (like the Election Commission). It’s a politically biassed court, which is why it has lost the respect of the public. Allowing the executive to override all checks and balances threatens its own authority, too. The legal analysts all over the press can’t decide if the Court will go the right (Constitutional) way, which is scary in its own right.

Before the Federal Reserve theme grew legs, a poll by top pollster AtlasIntel (April 10–14) showed 52% disapprove of Trump's performance as president. And as reported in New York Magazine, one Wall Streeter said “I did not think for one second he was going to go this crazy.”

It's the independence of the Fed from political interference that counts. It’s the cornerstone of credibility. The likely successor, former Fed Board member Warsh, is an okay guy and probably a decent Fed chief--except he would be seen as a Trump toady. An honorable man would refuse the job. Besides, the Open Market Committee consists of 12 voters, so Trump would have to fire 7 of them, too. And it’s not clear that Warsh can stem the ride of anti-US sentiment that will wreck the bond market, the stock market and the dollar.

Reuters reports “The Polymarket online betting platform for political events shows its users are placing a 21% chance on Trump removing Powell from his post this year, before the Fed chair's term expires in May 2026.

“Nervousness over Trump's war of words has spread to Main Street as well.

Google Trends shows searches among U.S.-based users for ‘Jerome Powell’ have spiked to their highest in at least five years, along with ‘apply for UK visa.’” (StatCan keeps track of Americans going to Canada. See the data with charts at https://www150.statcan.gc.ca/n1/pub/36-28-0001/2025003/article/00004-eng.htm).

Finally, Bloomberg writes that even if Trump gets his way, fires Powell and Co. and gets rate cut, so what is the short-term gain? “… there’s no guarantee that the rates which effect the real economy would actually go down.” Those rates are primarily the 10-year Treasury that is the foundation on which mortgage and other rates are set.

“Now, for what it’s worth, the Fed does have the mechanical tools to force all rates lower. It could engage in what’s called Yield Curve Control. The Fed could step into the market and, with its unlimited balance sheet, and say it’s going to buy all Treasuries that are yielding more than 3%. And that would actually work to get rates lower.”

But as we all know, 3% is not enough to keep inflation at bay and to keep investors, including foreign investors, buying Treasuries. The primary effect? A softer dollar.

Forecast

Based on his track record, Trump is going to fire Powell and maybe most of the board, too. It’s a razor-thin line whether the markets go into freefall or can be coaxed/bribed into accepting a new status quo. The bribe would be an immediate (inter-meeting) rate cut and promises of more to come—maybe even a 50 bp whopper to get the ball rolling.

Accustomed to working on adrenalin, traders are not equipped to deal with freak-outs that last too long. The average suburban mom with 5 kids can take more stress than this lot. Fatigue sets in early after a meltdown. Go back and look at any of the big financial market crises—2008, Brexit—and you see the markets moving against the news. This is named a dead cat bounce.

The point is, the cat really is dead. Don’t be misled by any dollar bounce. 

---

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!