Trump’s War on the Fed Risks Fuelling Inflation and Undermining Dollar Dominance
President Donald Trump’s intensified attacks on Federal Reserve Chairman Jerome Powell are signalling a profound shift in US economic governance—one that analysts warn could stoke domestic inflation and imperil the US dollar’s status as the world’s reserve currency.
Following repeated public disparagement of Powell, whom he has labelled “stupid” for maintaining current interest rates, the President has now directed prosecutors to investigate the central bank chief. The allegations, which Powell denies, concern supposed misleading statements to the Senate regarding renovation costs at Fed facilities
Challenging Institutional Autonomy
The confrontation represents more than a domestic political skirmish; it challenges the foundational autonomy of the Federal Reserve. Since the 1980s, the Fed’s independence in setting monetary policy to ensure price stability and maximum employment has been a cornerstone of global economic trust. This autonomy has made the Fed the premier source of economic signalling for investors and governments worldwide.
President Trump, however, is seeking to impose a different economic vision—one rooted in his long-standing belief that the US must overtly “win” every transaction. His administration is pushing for lower interest rates to stimulate activity and reduce government debt servicing costs.
Economists draw parallels to Turkey’s experiment under President Recep Tayyip Erdoğan in 2019, where politically motivated rate cuts led to negative real interest rates and soaring triple-digit inflation.
Any similar move to force a rate cut in the US—potentially under a new chairman when Powell’s term expires in May—would likely unleash inflationary pressures. Increased consumer borrowing and spending could create a vicious cycle where the dollar’s value erodes against goods and services.
Threat to the Dollar’s Global Status
The stakes extend far beyond US borders. The dollar has acted as the de facto global reserve currency for decades, supported by “path dependence”—the tendency of markets to stick to familiar systems—and the strength of US institutions, primarily the rule of law and an independent central bank.
However, global trust is showing signs of erosion. Investors are increasingly discussing, often anonymously, an aversion to US assets due to fears of political retaliation and instability. A politically controlled and depreciating dollar could accelerate the end of its hegemony, a shift that previous challengers like the euro or China’s monetary initiatives failed to trigger.
A Shift from Rule-Based Order
The post-WWII economic order, characterized by rule-based bodies like the World Trade Organisation, fostered decades of growth. But the 21st century has seen this stability undermined by financial crises, the pandemic, and the rise of populist politics.
President Trump’s approach threatens to further dismantle this order, potentially leading to increased economic regionalisation driven by an “us against them” mentality. As consumers potentially seek alternatives like gold or cryptocurrencies—assets Trump now champions despite previously calling Bitcoin a “scam”—the world may witness a genuine reversal in the dollar’s fortunes, echoing historical episodes where economic fragmentation preceded open conflict.