Commentary: Trump Versus the Fed and the Rise of the Yuan

The article examines the escalating conflict between U.S. President Donald Trump and the Federal Reserve (the Fed), particularly focusing on Trump’s attempts to remove Fed Governor Lisa Cook in August 2025. A district court blocked this move, but Trump quickly appealed to the Supreme Court, citing alleged mortgage application fraud as the cause for her dismissal. Observers widely interpret this as an attempt to undermine the Fed’s independence and bring it in line with presidential preferences. The outcome of this legal battle, and whether the Fed can maintain its autonomy, remains uncertain[para. 1][para. 2][para. 3].

Trump’s history of clashes with the Fed is longstanding. In his previous term, he was frustrated with then-Fed Chairman Jerome Powell over disagreements regarding interest rates and even considered firing him—an unprecedented move that prompted Fed leaders to prepare emergency defenses. These tensions abated only after Trump left office in 2021. Seven years later, Trump's return to power has reignited these disputes, fueled by his stronger control over Congress, a loyal White House team, and a conservative Supreme Court, strengthening his hand in challenging the Fed[para. 4][para. 5].

Media coverage anticipated renewed conflict following Trump’s presidential election victory in November 2024. Powell has repeatedly rebuffed suggestions that he could be fired by the president, relying on his legal background to assert that the law does not permit such removals without cause. Notably, Powell, unlike most Fed chairs, is a trained lawyer rather than an economist and a Republican, which played a role in his nomination. Yet, Powell’s defense of the Fed’s independence has likely led Trump to regret his appointment[para. 6][para. 7].

Trump, since his second inauguration on January 20, 2025, has openly pressured the Fed to cut interest rates, targeting Cook after “Mr. Too Late” Powell proved resistant. Legally, the president may only remove a Fed governor “for cause,” a definition still under debate. If Trump’s attempt to oust Cook succeeds, it could set a precedent for increased White House control over the Fed, eroding its traditional autonomy[para. 7][para. 8].

Historically, the Fed’s independence evolved over time. Before the 1980s, it often bent to political pressure, as with Nixon and Burns, leading to ineffective inflation control through the 1970s. Only after dramatic monetary tightening under Paul Volcker, resulting in taming inflation at the cost of high unemployment, did bipartisan consensus to protect the Fed’s independence emerge—a consensus that persisted until Trump’s presidency[para. 9][para. 10].

Debate persists over the necessity of Fed independence. Some argue it shields monetary policy from short-term political interference, proven invaluable in controlling inflation. Critics contend that unchecked independence could foster elite insularity. The U.S. system tries to strike a balance, with governors nominated by the president, confirmed by the Senate, and subject to Congressional oversight, but Trump’s overt attempts at interference are unprecedented[para. 11][para. 12][para. 13].

Market and academic consensus underscores Fed independence as critical to economic and currency stability. Erosion of this independence could undermine confidence in U.S. monetary policy, threaten the dollar’s international status, and open the door for competitor currencies, such as China’s yuan[para. 14][para. 15].

For China, these U.S. shifts present both opportunities and challenges. Internationalizing the yuan would require lifting capital controls and enhancing investor protections. Only with robust financial markets and strong regulation can China hope to challenge the dollar’s dominance and emerge as a financial superpower[para. 16][para. 17].

The Trump-Fed confrontation thus has profound implications, not just for U.S. domestic politics and economics, but for the global order. For China, the priority is strengthening its own market environment to seize potential opportunities from these changes[para. 18].