What Are the Economic Risks If the Fed Succumbs to Trump's Pressures?

Global markets are facing unprecedented pressures amid the escalating tensions between U.S. President Donald Trump and the Federal Reserve. In the midst of this conflict, concerns are rising about the potential impact of political pressures on the Fed’s independence, which could lead to serious consequences for the U.S. economy.

Trump’s Attack on the Fed and Its Impact on Markets

U.S. President Donald Trump has sharply criticized Federal Reserve Chairman Jerome Powell for his reluctance to aggressively cut interest rates. Trump argues that the Fed’s policy is harming the competitiveness of the U.S. economy and limiting growth opportunities, especially during this sensitive period marked by trade wars ignited by the White House.

At the same time, the dollar has seen a sharp decline, reaching its lowest level in three years against the euro, reflecting increasing concerns over the potential consequences of political interference with the central bank’s independence. Additionally, gold prices have surged to historic levels, surpassing $3500 an ounce, as investors flock to the precious metal as a safe haven amid growing uncertainty over the stability of U.S. monetary policy.

The Fed Under Pressure: Could the U.S. Monetary System Collapse?

While Federal Reserve Chairman Jerome Powell insists on maintaining the independence of monetary policy, there is a real threat from political interventions that could undermine this autonomy. Experts argue that politicizing monetary policy could worsen uncertainty in the markets and lead to long-term counterproductive outcomes.

Analysts link the ongoing decline in the dollar to the doubts raised by political interference in the Fed’s decisions, which has led investors to seek safe havens such as gold and cryptocurrencies. This shift towards gold reflects growing investor concerns about potential economic disruptions resulting from political interference in the monetary policy-making process.

Economic Risks of the Fed Deviating from Its Independent Path

Experts warn that yielding to President Trump’s pressures could create an “artificial boom” in the U.S. economy, where excessive rate cuts could lead to an unsustainable recovery. Rapid and sudden interest rate cuts could create an economic bubble that might burst later, triggering a widespread financial crisis.

Experts also point out that combining interest rate cuts with tariff impositions doubles inflationary pressures, reducing American consumers’ purchasing power. This leads to wage and price disruptions, threatening long-term economic stability in the U.S.

Future Consequences: A Monetary Crisis and Erosion of Confidence in the Dollar

If political pressures on the Fed continue, it could erode trust in the dollar as a global reserve currency. While the dollar remains a dominant currency in global markets, Trump’s continued attacks on the Fed may accelerate the shift towards safe alternatives, leading to a decline in the dollar’s global standing.

In this context, experts suggest that gold will remain one of the assets that investors continue to flock to during periods of economic and financial instability. The significant rise in gold prices reflects these concerns, increasing the likelihood of a slowdown in investment flows into the U.S. economy.

 The Necessity of Preserving Monetary Policy Independence

Economic experts emphasize that the Federal Reserve’s full independence is crucial for maintaining long-term stability in the U.S. economy. Any political interference in monetary policy will result in a loss of market and investor confidence, leading to economic volatility with potentially devastating effects.

In this context, analysts renew their warnings that a monetary policy driven by political pressures will not strengthen the U.S. economy. Instead, it could lead to a severe financial crisis that threatens the global financial system.