The correct answer is the XYZ affair.
The XYZ affair, which took place under President John Adams, dealt with America's relationship with French diplomats. Even though this event reflected poorly on President Adams, it did not cause significant damage to the Federalist Party.
However, laws like the Alien and Sedition Acts did cause the federalist to become unpopular. This is due to the restrictions put on free speech and the new qualifications necessary in order to become a US citizen. This negatively impacted many American citizens, especially immigrants.
