A Trump Appeal Threatens the Fed’s Independence—And the Dollar’s Global Trust

The Trump administration is preparing to appeal a recent court ruling that could threaten the independence of the Federal Reserve by enabling potential political interference in its governance structure. This move has sparked concerns about its broader implications for the U.S. dollar’s international standing and the stability of global financial markets. At the heart of the issue is former Federal Reserve Vice Chair Lael Brainard’s warning that there is a tangible risk of multiple Fed district bank presidents being removed from office due to politically motivated actions by President Donald Trump. Brainard, who served on the Fed board from 2014 to 2023, highlighted these concerns following Trump’s recent attempt to remove Governor Lisa Cook over allegations of falsified mortgage documents. If Trump succeeds in this effort, it could allow him to secure a majority of the Board of Governors, which is scheduled to vote on renewed terms in February 2026.

Brainard’s remarks underscore a growing apprehension that the Fed’s independence—a foundational pillar of its credibility—could be undermined. The potential for political interference raises questions about the Fed’s ability to maintain its mandate of price stability and maximum employment, which in turn affects the U.S. dollar’s perceived safety and reliability as a global reserve currency. A loss of confidence in the Fed’s autonomy could have cascading effects on international markets, where the dollar’s dominance is already under scrutiny due to geopolitical tensions and diverging monetary policies. Recent reports indicate that the U.S. dollar remains the dominant currency in global reserves, trade invoicing, and international financial transactions, with over 58 percent of global foreign exchange reserves held in U.S. dollars in 2024. However, the stability of this dominance is now being tested by the prospect of increased political influence over the Fed’s governance.

The implications of the administration’s appeal extend beyond domestic political maneuvering. As the Federal Reserve has historically played a crucial role in maintaining global financial stability—especially during crises—its perceived politicization could erode trust in the U.S. dollar as a safe-haven asset. This is particularly relevant given the broader economic context, where U.S. dollar strength has already been reinforced by a more hawkish Fed stance, rising Treasury yields, and robust employment data. The U.S. Dollar Index (DXY) has surpassed 110.00, with the euro and British pound experiencing significant declines against the dollar. Such market movements reflect the deep integration of the U.S. financial system with global markets, where the Fed’s policy decisions have far-reaching effects.

Moreover, recent research has highlighted the spillover effects of U.S. monetary policy on other economies, particularly in China, which is shown to absorb a significant portion of volatility from U.S. financial markets. This dynamic reinforces the interconnectedness of global financial systems and suggests that any erosion in the Fed’s independence could amplify systemic risks. The U.S. dollar’s role as a medium of exchange and a store of value is further reinforced by its dominance in stablecoin issuance, with nearly all stablecoin market capitalization tied to the dollar. These developments highlight the dollar’s entrenched position in the global financial architecture, but they also expose vulnerabilities that could be exploited in a period of heightened geopolitical or economic uncertainty.

Despite the Trump administration’s legal challenge, the dollar’s dominance appears resilient in the near term. Central banks continue to rely on the dollar for reserves, and the U.S. financial system remains unmatched in terms of depth, liquidity, and institutional strength. However, the potential for political interference in Fed governance introduces an element of unpredictability that could undermine long-term confidence. As Brainard and others have emphasized, the independence of the Federal Reserve is not only a domestic concern but also a critical factor in maintaining the U.S. dollar’s role in the global economy. The coming months will be pivotal in determining whether the administration’s appeal leads to a reinvigoration of the Fed’s independence or a shift toward increased political oversight, with significant consequences for the dollar’s future.