Wall Street Jolted by Trump-Fed Fight Before CPI: Markets Wrap
(Bloomberg) — Wall Street kicked off the week on a cautious note, with stocks, bonds and the dollar edging lower as traders rushed to the safety of precious metals after the Trump administration escalated its attack on the Federal Reserve, raising concern about central bank independence.
While moves were largely contained to be considered a selloff of American assets, they underscored unease over political interference in monetary policy. The S&P 500 halted a rally that put the gauge on the brink of 7,000. Capital One Financial Corp., American Express Co. and JPMorgan Chase & Co. sank as President Donald Trump called on credit-card companies to cap interest rates at 10% for a year.
Longer-dated Treasuries underperformed, with 30-year yields set for their biggest advance this year. Those on two-year notes were little changed. The dollar fell against most of its major peers.
The Fed’s perceived independence from government whims is a bedrock assumption of US markets, and any change to that perception could weigh on sentiment. While Fed independence risks will likely be a key theme throughout 2026, Krishna Guha at Evercore says he’s alive to the possibility the market may not deliver a “full-blown riot.”
“Investors have learned to live with Trump bullying the Fed, Powell has only four months left as Fed chair, there is no immediate threat of removal, and Powell has pledged to continue as before,” Guha said.
Jerome Powell said the central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment. In a forceful written and video statement released Sunday evening, Powell said the action was related to his June congressional testimony on ongoing renovations of the Fed’s headquarters.
In an interview with NBC News on Sunday, Trump denied having any knowledge of the investigation into the central bank.
The S&P 500 fell to around 6,960. The KBW Bank Index lost 1.4%. The yield on 10-year Treasuries rose two basis points to 4.19%. A dollar gauge slid 0.3%.
The Trump administration’s latest attack on the Fed’s independence poses a threat to the US stock market, at least in the short term, according to JP Morgan Securities’ trading desk.
“While macro and corporate fundamentals support a tactically bullish stance the risk to Fed independence creates an overhang and thus we are cautious in the very near-term,” Andrew Tyler, head of global market intelligence, said. “The risk around Fed independence is likely to push the US toward near-term underperformance.”
The strength of the evidence in favor of greater central bank autonomy lowering inflation has often been overstated, and even complete independence offers no guarantee of low inflation in future, according to Jennifer McKeown at Capital Economics.
“But sustained political intrusion into monetary policy would come at a cost, even if markets are willing to overlook it in the short term.”
The price action in bonds is consistent with Fed credibility concerns, with the yield curve steepening. That being said, the price action was within the prevailing range, noted Ian Lyngen at BMO Capital Markets.
“After shrugging off last week’s geopolitical surprises, US markets face domestic political headlines as trading kicks off this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Barring additional surprises, the markets will likely turn their attention to earnings and inflation data.”
US consumers probably experienced only a modest pickup in inflation as 2025 drew to a close, consistent with price pressures that are gradually abating.
The core consumer price index, regarded as a measure of underlying inflation because it strips out volatile food and energy costs, is seen rising 2.7% in December from a year earlier. That’s just a touch more than the 2.6% annual advance in November, which was the smallest since early 2021.
“Overall, while the Fed cannot dismiss the possibility of a more sustained inflationary episode, a cooling labor market should help contain price pressures,” said Seema Shah at Principal Asset Management. “Inflation is expected to remain slightly elevated through 2026, with a return to the 2% target this year appears unlikely.”
Corporate Highlights:
Nvidia Corp. plans to invest $1 billion over five years in a new laboratory with Eli Lilly & Co., aiming to speed up the use of artificial intelligence in the pharmaceutical industry. Societe Generale SA is scrapping a self-developed artificial intelligence tool in favor of Microsoft Corp.’s Copilot solution, highlighting the challenges even large lenders face in building out their own offering in the cost-intensive technology. UnitedHealth Group Inc. used “aggressive strategies” to maximize diagnoses and boost payments for patients on private Medicare health plans, a new Senate report found, adding to pressure on the largest US health insurer. JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. are among the largest US banks expected to post slower revenue growth as trading gains ease from the elevated levels experienced in recent quarters. Paramount Skydance Corp. plans to nominate a new slate of directors to Warner Bros. Discovery Inc.’s board to thwart a planned merger with Netflix Inc., and filed suit to get more information about that deal. Abercrombie & Fitch Co.’s holiday sales disappointed investors, helping spark a selloff in retail stocks. Shake Shack Inc. reported preliminary fourth-quarter sales below Wall Street estimates, another sign of struggles in the fast-casual restaurant sector. Five Below Inc. boosted its sales forecast beyond Wall Street estimates after reporting a banner holiday shopping season. Moderna Inc. said its US Covid business did better than expected last year, a rare bright spot for the vaccine maker, which has struggled with the decline of people getting its shot. Allegiant Travel Co. agreed to buy Sun Country Airlines Holdings Inc. in a $1.5 billion cash-and-stock transaction, further driving consolidation in the US airline industry amid intensifying competition. Alaska Air Group Inc. is upgrading its technology systems in the wake of painful outages that upended operations and hit earnings, a crucial step in the company’s strategy to establish itself as a global carrier. QXO Inc. is raising another $1.8 billion from investors including Apollo Global Management Inc. and Temasek Holdings Pte, comfortably more than doubling the $1.2 billion financing deal it announced last week. The US Supreme Court turned away a bid by Hertz Global Holdings Inc. to avoid paying bondholders more than $320 million in a case stemming from the company’s Covid-era bankruptcy. Michael Saylor’s Strategy Inc. acquired almost $1.25 billion in Bitcoin, marking the company’s largest purchase of the digital asset since July. UBS Group AG said planned Swiss banking reforms are a threat to the national economy as pressure builds on the government to water down the proposals. Heineken NV Chief Executive Officer Dolf van den Brink is stepping down abruptly as the brewer faces a drop in beer sales and underperforms rivals. Simon Carter, chief executive officer of British Land Plc, is set to step down from the role after five years and will head to P3 Logistics Parks to lead the GIC Pte-owned investor and developer. Birkenstock Holding Plc reported strong sales figures for the final months of 2025 as demand stays robust for its high-end sandals and clogs, despite the impact of a weaker US dollar and tariffs. Mercedes-Benz Group AG fell further behind BMW AG in selling electric vehicles, leaving the automaker increasingly reliant on a slate of upcoming models to revive interest in its plug-in lineup. Some of the main moves in markets:
Stocks
The S&P 500 fell 0.1% as of 10:31 a.m. New York time The Nasdaq 100 fell 0.1% The Dow Jones Industrial Average fell 0.5% The Stoxx Europe 600 rose 0.2% The MSCI World Index was little changed Bloomberg Magnificent 7 Total Return Index was little changed The Russell 2000 Index fell 0.4% KBW Bank Index fell 1.4% Currencies
The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.4% to $1.1678 The British pound rose 0.5% to $1.3474 The Japanese yen was unchanged at 157.89 per dollar Cryptocurrencies
Bitcoin rose 0.6% to $91,198.26 Ether was little changed at $3,115.04 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.19% Germany’s 10-year yield declined two basis points to 2.84% Britain’s 10-year yield advanced one basis point to 4.38% The yield on 2-year Treasuries was little changed at 3.54% The yield on 30-year Treasuries advanced three basis points to 4.84% Commodities
West Texas Intermediate crude was little changed Spot gold rose 2.4% to $4,619.45 an ounce ©2026 Bloomberg L.P.
