President Donald Trump promised voters last fall he’d swiftly defeat inflation once back in the White House. Yet his unprecedented and relentless attacks on the Federal Reserve could end up doing the opposite — destabilizing the economy and hurting markets.
While Trump is the first U.S. president to try to fire a Federal Reserve governor, he’s not the first politician to seek lower interest rates. Presidents have historically wanted cheap borrowing costs to stimulate growth and win voter support.
But the Fed was deliberately designed to be independent of political interference. Economists warn Trump’s pressure campaign could backfire, igniting inflation and pushing mortgage rates even higher — a direct hit to American households.
The Risk of Overheating the Economy
Forcing interest rates artificially low can overheat the economy, fueling inflation. After Covid-19, when stimulus was excessive, inflation soared to four-decade highs. Now, with progress toward the Fed’s 2% target stalled, Trump’s attacks risk worsening the cost-of-living crisis.
Mortgage Rates Could Spike Higher
If investors lose confidence in the Fed’s independence, they could demand higher returns on long-term loans. That would drive up long-term interest rates, including mortgage rates, already hovering around 7%. This undermines Trump’s own pledge to lower inflation and improve affordability.
History Repeats Itself
Past cases show the dangers of meddling with central banks:
- Nixon & Burns (1970s): Nixon pressured the Fed into loose policy, leading to runaway inflation and stagflation.
- Turkey (2021): President Erdogan undermined his central bank, causing the lira to crash and inflation to surge above 80%.
Economists warn the U.S. could face similar consequences if Fed independence is eroded.
The Bigger Picture for Traders
For those in forex trading and commodity trading, central bank independence is a cornerstone of market stability. Trump’s interference with the Fed injects uncertainty, driving volatility across currencies, stocks, and bonds.
Platforms like forexpediaa offer traders insights into how forex trading strategies adapt when politics collide with monetary policy. Tools such as a forex position size calculator help manage risk during turbulent times, while professional trading services support investors navigating inflation and rate shifts.
Conclusion
As Tim Mahedy, former senior advisor at the San Francisco Fed, put it: “Trump is breaking the cardinal rule of central banking: Criticize, but don’t politicize.” The price of undermining the Fed’s independence may be steep — one that impacts markets, inflation, and future generations.
