Financial markets appear unrattled for now – but that could change if Trump-Fed tensions escalate
Ten-year Treasury yields – a key driver of US fixed mortgage rates – spiked on Monday morning as financial markets absorbed the news of a criminal investigation into Jerome Powell and the Federal Reserve, briefly sparking fears of a jump in borrowing costs.
But that proved a short-lived trend with yields slipping to 4.17% by the early afternoon, placing them just above their level at the beginning of the day.
That retreat mirrored a trend seen throughout the past year in the stock market, which has largely greeted President Trump’s efforts to exert more control over the central bank with little more than a shrug.
On Monday, the S&P 500 barely wobbled, suggesting market watchers are still largely unconcerned at the immediate impact of the criminal investigation.
Still, it’s too early to gauge whether the probe – which centers around testimony Powell provided to a Senate committee about renovations at the Fed’s headquarters – will ultimately impact mortgage rates.
A return to ‘Sell America’?
Last April, Treasury yields began to climb as investors grew nervy about the Trump administration’s wave of tariffs on international trading partners, measures which triggered mounting unease about the country’s economic stability and a sharp selloff of US government bonds.
Could a similar “Sell America” push gather pace if the administration’s investigation of Powell raises more concerns about the central bank’s independence and investors begin to dump Treasuries?
The US dollar slid on Monday amid the whirlwind of Fed speculation, while the Trump administration’s investigation of Powell faced a barrage of criticism from prominent economists and past central bank and Treasury officials.
Former Fed chairs Ben Bernanke and Alan Greenspan joined former Treasury secretaries Timothy Geithner, Jacob Lew, Hank Paulson, Robert Rubin, and Janet Yellen – among others – to decry the move as “an unprecedented attempt to use prosecutorial attacks to undermine [Fed] independence.”
They said the investigation resembled strategies used in emerging markets with weaker institutions, “with highly negative consequences for inflation and the functioning of their economies more broadly.”
Last week, mortgage rates briefly dipped into the high fives on the back of Trump’s plan to have Fannie Mae and Freddie Mac snap up $200 billion in mortgage bonds, before settling around the 6% mark.
In a note to clients on Monday, JPMorgan traders hinted “Sell America” thinking could strengthen ahead of looming arguments on another Fed case, Trump’s efforts to fire governor Lisa Cook, later in January.
Republican opposition to the investigation into Powell, who was appointed by Trump as chair during his first administration, also grew on Monday.
Senator Thom Tillis, a North Carolina Republican, said he would block any Trump nominations to the central bank until the end of the investigation, while Alaska senator Lisa Murkowski described the move as “nothing more than an attempt at coercion.”
Murkowski also hinted at broader problems for the economy if the investigation proceeds. “If the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer,” she wrote in an X post.
After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion. If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns—which are not…
— Sen. Lisa Murkowski (@lisamurkowski) January 12, 2026
Financial markets unruffled, for now
It remains to be seen how far the investigation goes – and whether Trump will attempt to fire Powell before his term ends in May, as he reportedly considered in 2025.
That would almost certainly cause a bitter, public, and potentially long-drawn out legal battle, spurring fresh concern about the stability and independence of the US financial system and putting more upward pressure on rates.
But for now, mortgage market observers can only watch and wait to see how the latest twist in an extraordinary months-long drama between the Trump administration and the Fed plays out.
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