Trump vs. the Fed: Can’t Handle the Heat, Will Lower USD? 🔥💸

Markets

What to know:

President Trump’s relentless attacks on the Fed risk triggering reflexive stubbornness among policymakers. Because nothing says “economic expertise” like a temper tantrum at a podium.
This could deepen what Trump and others describe as a Fed that is “behind the curve,” potentially weighing on the U.S. dollar. Spoiler: It’s not a curve-it’s a cliff.

One of the most controversial features of President Donald Trump’s second term is his relentless criticism of Federal Reserve (Fed) Chair Jerome Powell for maintaining elevated interest rates – a stance Trump argues is unnecessarily costly to the American economy. Because who needs data when you can just wing it?

But this is more than just rhetoric. Trump is aggressively attempting to undermine the Fed’s board, threatening an institution long known for its political independence. Irony alert! This very assault risks backfiring, deepening what Trump and others describe as a Fed that is “behind the curve,” potentially leading to a deeper sell-off in the U.S. dollar. Classic move, Karen.

“Political pressures make it tough to credibly shift to an overtly dovish footing. That leaves policy data driven (thus late) rather than pre-emptive. That’s bad for the USD,” the market insights team at Lloyds Bank led by Nicholas Kennedy, said in a note to clients on Sept. 18. Thanks, Captain Obvious.

Trump’s Attack on the Fed

Last Thursday marked a new chapter in Trump’s campaign against the central bank, as his administration took the unprecedented step of petitioning the U.S. Supreme Court to allow the firing of Federal Reserve Governor Lisa Cook. Because why settle for a boring old Fed when you can have a reality TV show?

The move followed a temporary judicial block issued by U.S. District Judge Jia Cobb, who prevented the ousting of Cook, a Biden appointee, pending further legal proceedings. Meanwhile, Trump’s team is probably drafting a lawsuit against gravity.

According to the Lloyds Bank market insights team, such attacks are likely to increase as Powell enters the final months of his term as Chairman. Trump’s recent appointee at the Fed, Stephen Miran, is already calling for rapid-fire rate cuts and wants the bank to reduce the benchmark borrowing cost by 50 basis points in the recently concluded meeting. Because nothing says “economic stability” like a game of Whac-A-Mole with interest rates.

Behind the Curve

At its core, Trump’s campaign reflects a desire for a Fed more responsive to his economic worldview, which demands ultra-low rates around 1%, down significantly from the present 4%. Because who needs data when you can just wing it?

Trump has argued that current rates keep mortgage costs prohibitively high for many Americans, hindering homeownership and imposing billions in unnecessary debt refinancing expenses. He frames this as a staggering missed opportunity on an otherwise “phenomenal” economy. Meanwhile, many economists agree that rates remain too high given signs of weakening labor markets and consumer health. Because nothing says “economic genius” like ignoring all the red flags.

Thus, the Federal Reserve is widely perceived as “behind the curve” – a technical term meaning it is too slow to cut rates in response to evolving economic conditions. Yet, Trump’s insistence on forcing faster rate cuts risks pushing the Fed further behind this curve. Because of course, it’s a curve. Why not a straight line? That would be too simple.

Damned if they do, damned if they don’t

Imagine holding the reins of the world’s most powerful central bank, responsible not only for the world’s largest economy, but the fate of the global reserve currency, the USD. Now imagine the political pressure to cut rates quickly, against the fear of appearing politically compromised. This leaves policymakers damned if they act and damned if they don’t. Classic sitcom dilemma!

So, unlike typical policymakers who adjust with measured calm in response to data, Powell and his colleagues now operate under intense political pressure and public scrutiny from the White House. They face a classic catch-22: face accusations of succumbing to political pressure in case of rapid rate cuts (even if they do so independently); wait too long and risk the potential deepening of an economic slowdown. Because nothing says “leadership” like playing Russian roulette with the economy.

This dynamic could breed reflexive stubbornness. To avoid accusations of capitulating to political pressure, the Fed may instinctively lean towards caution – waiting longer and keeping rates elevated. However, this posture can exacerbate the problem: delayed rate cuts keep monetary policy out of sync with economic conditions, much like a patient who resists mild medication only to require drastic doses once a fever spikes. Because of course, the Fed is now your personal doctor.

The subsequent high doses of rate cuts could be interpreted by markets as a sign of panic, leading to increased volatility in financial markets, including cryptocurrencies. Because nothing says “financial stability” like a rollercoaster of chaos.

Dollar at risk

The catch-22 situation could also weigh on the U.S. dollar, a bullish development for dollar-denominated assets like gold and bitcoin. Because nothing says “financial stability” like a currency tanking while crypto skyrockets.

The dollar index, which measures the greenback’s value against major currencies, has dropped nearly 10% this year to 97.64. Meanwhile, bitcoin’s price has rallied by 24% to $115,600. Because of course, it has. Why not?

2025-09-21 18:55

What to know:

Trump’s Attack on the Fed

Behind the Curve

Damned if they do, damned if they don’t

Dollar at risk

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