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How Trump’s Attacks on Powell and the Fed Could Actually Fuel More Inflation

We’ve all heard Donald Trump’s criticism of Jerome Powell and the Federal Reserve before, but lately, it’s been turning up the volume—and that’s starting to shake things up. When a former president and top contender for the next election openly goes after the Fed and its chair, it sends waves through markets worldwide. From CFOs to analysts to everyday investors, people are scrambling to figure out what it all means for their money and the economy.

At first glance, it’s easy to dismiss it as just political noise. The Fed is supposed to be independent, right? Its job is to keep prices stable and help people find jobs. But if you chat with folks on Wall Street or small business owners down the block, you’ll hear a different story—political pressure affects expectations. And when it comes to inflation, what people expect can quickly become what actually happens.

Why Undermining the Fed is Risky Business

When someone with Trump’s clout starts attacking the Fed, it’s not just about griping over interest rates. It’s about shaking faith in one of the country’s most important economic institutions. Inflation isn’t just a game of supply and demand—it’s also about trust. If people start doubting the Fed’s commitment, businesses might hike prices “just in case.” Workers could push for bigger paychecks because they think prices will keep climbing. And lenders? They might add extra charges to cover their risks.

In my experience, a lot of teams wrestle with inflation forecasts that depend more on psychology than on numbers. The tricky part is if enough people start believing inflation is coming, it often becomes a self-fulfilling prophecy. Markets try to guess what the Fed will do next and adjust accordingly. That’s how these expectations get baked right into the economy.

Remembering Trump’s Past Moves—and What Markets Recall

Let’s be real, Trump’s history with the Fed isn’t new. During his presidency, he pushed Powell hard to cut rates, even when the economy was doing well. The Fed held its ground at times, but the pressure was definitely there. Now, in 2024, Trump’s back at it—talking about firing Powell, slashing rates, and making the Fed more “pro-growth.” He’s even suggested tying interest rates to political goals, which is a pretty bold idea.

Markets don’t forget. Investors, especially overseas, start to wonder if the dollar is still a safe bet. In emerging markets, this kind of uncertainty can lead to capital flight. Here at home, it might mean a weaker dollar, pricier imports, and yep — a higher risk of inflation creeping in.

The Myth of a Politically Immune Fed

We like to think the Fed is above politics, but that’s more wishful thinking than reality. I’ve worked with policy folks who say, off the record, that the Fed closely watches what’s happening in Washington. If the chair is under fire, expect them to tread lightly. Maybe they’ll delay a rate hike or cut rates sooner than they otherwise would. The whole process gets clouded.

Central banks rely a lot on “talking markets down” — calming nerves through clear communication. But when political noise drowns that out, the effect is lost. What follows is volatility in bond markets, uncertainty in lending, and businesses getting jittery. And all these factors? They can push inflation higher.

How This Could Lead Straight to More Inflation

If Trump pulls off bending the Fed to his will—no guarantee, but plausible if he wins—expect lower rates and looser policy. In the short term, this might give the economy a boost and send asset prices soaring. But history tells us easy money in a hot economy usually sparks inflation.

I’ve had clients celebrate when borrowing gets cheaper, only to complain six months later about rising costs and tighter profit margins. It’s a trade-off that’s often underestimated. Inflation can sneak up fast, especially if workers start demanding higher wages to keep up.

Where This Story Might Fall Apart

Of course, it’s not a slam dunk. If the global economy hits a rough patch—say, a major recession in Europe or slowdown in Asia—even a politicized Fed might not ignite inflation. Deflationary forces could easily outweigh any domestic policy mistakes.

Plus, the Fed might still stand firm. Powell or whoever takes his place could decide that credibility is worth the political heat. If so, expect a tough political fight but not necessarily an inflation disaster. Central banks in other countries have faced worse and kept their ground—Turkey, for example, though the results there have been mixed.

What This Means for Everyday Americans

This isn’t just theory. If the Fed loses trust and inflation creeps up, mortgage rates might stay high longer, groceries and gas could cost more, savers get squeezed, and investors see more ups and downs. Small businesses, already dealing with wage hikes and supply chain headaches, have to guess how costs will move next.

So what’s the game plan? Some CFOs I talk to are locking in fixed-rate loans now, expecting rates to rise later. Others are cutting back on inventory to avoid getting stuck with costly stock if inflation cools but demand stays strong. The tricky part? Timing all this right is tough—there’s no crystal ball, especially when politics is involved.

The Global Ripple Effect

The U.S. doesn’t operate in a bubble. If the Fed looks like it’s just playing politics for the White House, foreign investors might rethink their exposure to the dollar, Treasuries, or U.S. stocks. That could push up borrowing costs and put more pressure on the Fed to act, whether it wants to or not.

I’ve seen this kind of thing happen in emerging markets. It’s less common in developed ones, but not impossible. The U.S. still enjoys what’s called the “exorbitant privilege” of issuing the world’s reserve currency—but even privileges have limits.

Adding Some Nuance

That’s not to say Trump’s critique is completely off base. Plenty of economists argue Powell was slow to tighten policy back in 2021. And the Fed’s balancing act between supporting growth and controlling inflation is genuinely tricky. But using the Fed as a political weapon rarely ends well.

What I’ve seen over and over is that when central banks lose their independence, inflation risk goes up. It’s not a sure thing everywhere, but often enough to be worrying.

Wrapping It Up

Trump’s attacks on Powell and the Fed won’t automatically cause an inflation crisis. But they do raise the chances by undermining trust, messing with expectations, and possibly leading to looser policy at the wrong time. Most teams find it tough to navigate this kind of uncertainty, and the real impact isn’t in the headlines—it’s in the everyday decisions businesses and consumers have to make.

If you’re planning for the next few years, don’t tune out the noise. Sometimes that noise is the first sign of a coming storm.

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