The Dollar's Descent: How Trump's Threats to the Fed Are Upending Markets
3min read The U.S. dollar has fallen to a decade-low against the Swiss franc and a seven-month low against the yen, as President Donald Trump’s escalating threats to remove Federal Reserve Chair Jerome Powell send shockwaves through global markets. With the euro surging to a three-year high of $1.153275 and the dollar index (DXY) dipping to 98.267—the lowest in three years—the greenback’s decline reflects deepening investor skepticism about the Fed’s ability to operate independently of political pressure. This crisis of confidence is no mere blip: it threatens to upend the economic stability the Fed has spent decades cultivating.
Trump’s Legal Blitz and the Fed’s Fragile Autonomy
At the heart of the turmoil is Trump’s relentless campaign to oust Powell, whom he blames for the Fed’s reluctance to slash interest rates—a move Trump argues would boost short-term economic growth ahead of political challenges. “Powell’s termination cannot come fast enough!” Trump declared in April 2025, echoing earlier claims that he could remove the chair “real fast.” While legal scholars argue that existing law bars the president from firing Powell without “cause,” the ambiguity of his status as both Fed chair and board member has created a legal gray zone.
The Supreme Court’s pending ruling on Trump v. Phillips et al.—a case challenging the 90-year-old Humphrey’s Executor precedent—could redefine this landscape. If the Court overturns the precedent, it would grant presidents sweeping authority to dismiss leaders of independent agencies, including the Fed. Even if the ruling sidesteps the Fed’s unique status—as Justice Samuel Alito hinted in 2023—the erosion of norms around central bank independence is already underway.
Markets React: A Preview of What’s at Stake
Investors are already pricing in the risks. The dollar’s slide has been met with a sell-off in stocks and a spike in bond yields, as traders brace for a Fed stripped of its ability to set rates free from political whims. A sudden dismissal of Powell could trigger a full-blown crisis: Mizuho’s Vishnu Varathan warns that market trust in the Fed’s credibility is “the last line of defense against a dollar rout,” with bond yields potentially surging to 2023 levels if the Fed’s inflation-fighting mandate is compromised.
The stakes are global. Over 70% of central banks worldwide are subject to direct political control, a reality that has fueled chronic inflation in countries like Turkey and Argentina. The Fed’s independence, by contrast, has long been a pillar of global financial stability. Yet Trump’s tariffs—already raising import costs and distorting supply chains—have compounded the damage. “This isn’t just about the dollar,” says economist Ana Carolina Garriga. “It’s about whether the world’s largest economy can still anchor its currency in a rules-based system.”
Lessons from History—and the Road Ahead
The 1970s offer a cautionary parallel. When Fed Chair Arthur Burns bowed to President Nixon’s re-election demands, inflation spiraled to 13%, requiring Paul Volcker’s brutal rate hikes of up to 20% to restore order. Today’s Fed, with rates at 4.3%, faces a similar test: balancing near-term growth pressures against long-term price stability. If Trump succeeds in politicizing the Fed, the U.S. could revisit that era’s stagflation, with inflation spiraling and stocks collapsing.
Conclusion: A Crossroads for the Dollar—and Democracy
The dollar’s decline is more than an exchange rate issue—it’s a referendum on the United States’ commitment to institutional independence. With the Supreme Court’s ruling looming and bond markets already pricing in political risk, investors face a stark choice. Stick with the dollar, and hope the Fed’s autonomy survives; pivot to alternatives like the yen or Swiss franc, and bet on a prolonged era of U.S. economic instability.
The data is clear: central banks with strong independence, like Switzerland’s, have averaged just 1% inflation over the past decade. Those with politicized leadership, like Turkey’s, have seen prices rise by 20% annually. The Fed’s fate—and the dollar’s—will be decided not just by the Supreme Court, but by whether markets still believe in the Fed’s ability to act as an impartial arbiter of monetary policy. The greenback’s next move is no longer just about economics—it’s about the survival of a foundational American institution.
