President Donald Trump’s unprecedented and ever-escalating assault on the Federal Reserve risks backfiring, saddling financial markets and the broader economy with higher long-term borrowing costs.
For weeks now, he has berated Fed Chair Jerome Powell for failing to slash interest rates hard enough to juice growth and, in Trump’s world, to trim the government’s debt bill. He has already parachuted the head of his Council of Economic Advisers into the Fed’s board. He is now attempting to oust Governor Lisa Cook, setting up a potential legal battle over the institution’s political independence.

Yet for all the Fed’s influence on short-term rates, the true power lies elsewhere. Powell and his colleagues may trim the overnight Fed funds rate, but global investors, not politicians, set long-term rates. They reflect cold, unforgiving judgments about deficits, inflation risks and credibility. In other words, Trump may wrestle temporary control of the steering wheel at the short end of the curve, but the bond market decides where the road actually goes.
And the signs are clear: despite Powell’s polite signalling that monetary easing could begin as early as next month, long-term yields have remained stubbornly high. Why? Because tariffs are stoking inflation, deficits are flooding the market with paper, and Trump’s tax cuts promise yet another stimulus splurge next year.

Investors are hardly reassured by the prospect of a Fed retooled as a presidential plaything. The fear is simple: a compliant Fed cuts too far, too fast, loses its inflation-fighting credibility, and ultimately drives long-term rates even higher. In other words, the supposed cure could prove worse than the disease.
Falling payroll growth in the US, combined with the White House’s personal and institutional attacks on the Fed, is beginning to create genuine problems for Treasury investors. Inflation is well above target, and a much weaker dollar would only fuel a boom and still higher inflation.

The problem, of course, isn’t confined to America. From London to Paris, investors are facing the same toxic cocktail of swollen debt and erratic policymaking. But Trump’s trade-war acrobatics add their own special flavour: tariffs imposed, retracted, then reimposed, coupled with a deficit-ballooning tax plan that promises another $3 trillion of red ink over the coming decade.
Even some on Wall Street admit that the ghosts of history are rattling their chains. Nixon’s pressure on Arthur Burns in the early 1970s led to runaway inflation and a lasting cautionary tale for America.
And yet, with Trump swinging his wrecking ball at the Fed’s independence, investors are right to ask: What happens if the central bank becomes just another lever in the White House toolkit in the hands of a president who once suggested curing Covid with bleach?