Trump's Attacks on the Fed: Undermining Independence and Risking Economic Instability
President Donald Trump's ongoing criticism of Federal Reserve (Fed) Chair Jerome Powell and his administration's actions to influence the Fed's board are causing controversy. Trump's stance, which includes advocating for lower interest rates, is viewed by many as a threat to the Fed's political independence, a cornerstone of the institution.
Trump's Aggressive Actions Against the Fed
Trump's opposition to the Fed's monetary policy has escalated beyond mere rhetoric. His administration has petitioned the U.S. Supreme Court seeking permission to remove Federal Reserve Governor Lisa Cook, a move unprecedented in the Fed's history since its founding in 1913. This follows a temporary block by U.S. District Judge Jia Cobb, preventing Cook's removal pending legal proceedings.
According to the market insights team at Lloyds Bank, these attacks are likely to intensify as Powell's term nears its end. Furthermore, Stephen Miran, a recent Trump appointee to the Fed, is advocating for aggressive interest rate cuts, proposing a 50-basis point reduction in the benchmark borrowing cost at a recent meeting.
The "Behind the Curve" Dilemma
At the heart of Trump's pressure is a desire for a Fed more aligned with his economic vision. He favors ultra-low interest rates, around 1%, a significant drop from the current level of approximately 4%. He argues that prevailing rates are excessively high, making mortgages unaffordable and unnecessarily increasing refinancing costs. Trump views this as a missed opportunity to further bolster what he considers an otherwise "phenomenal" economy. Some economists agree that rates remain high given weakening labor markets and consumer spending.
The phrase "behind the curve" describes the perception that the Federal Reserve is reacting too slowly to changing economic conditions by delaying interest rate cuts.
Damned If They Do, Damned If They Don't: The Fed's Predicament
The Federal Reserve faces a difficult situation. They are responsible for the world's largest economy and the fate of the U.S. dollar (USD) as the global reserve currency. The political pressure to cut rates quickly clashes with the need to maintain the appearance of political independence. Policymakers find themselves in a "catch-22" scenario, potentially facing criticism regardless of their actions.
Unlike typical policymakers who calmly adjust to data, Powell and his colleagues now operate under intense political pressure and public scrutiny from the White House. Rapid rate cuts, even if independent, could be seen as succumbing to political pressure. On the other hand, waiting too long risks deepening an economic slowdown.
This pressure can lead to reflexive caution. To avoid accusations of political capitulation, the Fed might delay rate cuts, keeping rates higher for longer. However, this can exacerbate the problem, causing monetary policy to be out of sync with economic conditions. The risk is that a delayed response will require more drastic rate cuts later, potentially triggering market panic and increasing financial volatility, including in the cryptocurrency market.
Dollar at Risk
The Fed's predicament could also negatively impact the U.S. dollar, which could be a positive development for dollar-denominated assets like gold and Bitcoin. As the CoinDesk source reported in 2025, the dollar index, which measures the greenback's value against major currencies, had dropped nearly 10% that year. Meanwhile, Bitcoin's price had rallied significantly.
