Trump Vs the Fed
My concern with Trump has always been less about his politics and more about the potential fallout of his policies, not just for the U.S. but globally. Much like recognizing a neighbor’s right to do as they please with their property, you’re still invested in their decisions, because there is such a thing as externalities.
Nowhere is this more true than in the financial system. The U.S. dollar and Treasury market are critical to global finance, meaning instability in U.S. institutions can quickly spill across borders.
Independence Under Threat
Over the past months, Trump has repeatedly pressured Fed chair Jerome Powell to cut interest rates, taking to social media with criticisms that included calling him a ‘moron,’ a ‘stubborn mule,’ and mocking him as ‘too late Jerome’.
Powell’s refusal to yield to political pressure was critical. At a time when the credibility of other U.S. institutions including the media, universities, and more recently, the Bureau of Labor Statistics, was under attack, the Fed stood firm.
Central bank independence is essential to keeping inflation under control. Unlike politicians with short electoral horizons, the Fed is mandated to take the long view: maintaining price stability, supporting employment, and protecting the credibility of the financial system.
That credibility is what anchors inflation expectations. Investors lending to the U.S. government demand compensation based on what they believe inflation will be in the future. If faith in the Fed erodes, investors will demand higher yields.
Rising U.S. yields will likely spill over globally, pushing up borrowing costs for governments, households, and businesses in Canada, Europe, the U.K., and beyond, underscoring the role of treasuries as the world’s reference safe asset, or “risk-free” benchmark.
Why Cook’s Removal Matters
Trump is now seeking to remove Fed Governor Lisa Cook, citing allegations of mortgage fraud. As with earlier threats to remove Powell, the legality is uncertain and will ultimately be decided by the courts
If Cook were expelled, Trump would likely replace her with a more politically aligned nominee, giving him a 4–3 majority on the seven-member Board of Governors. Even if that outcome doesn’t materialize, the optics alone are damaging: the very perception that monetary policy could be bent to political will undermines trust in the Fed’s independence.
Trump already has some likely allies on the Board, including governors he appointed in his first term, as well as his new nominee and advisor, Stephen Miran, who has openly supported his calls for rate cuts. As Trump said this week:
“Once we have a majority, housing is going to swing, and it’s going to be great . . . we have to get the rates down a little bit, and when we do, it’s going to [make] a tremendous difference.”
If a Fed majority were to act in line with political pressure rather than economic fundamentals, inflation expectations could decouple from the Fed’s 2% target. That would mean higher long-term interest rates, even if short-term policy rates were cut. For borrowers, households, and governments globally, this translates into more expensive debt.
The Bottom line
Inflation may reduce the real burden of U.S. federal debt, but it erodes household purchasing power and raises borrowing costs across the economy. Worse, if the Fed is seen as just another political arm of government, its credibility, the foundation of the financial system, would be at risk.
For economists, investors, and ordinary households alike, the prospect of a politicized Federal Reserve is not just an American issue. It’s a global one.