Trump vs Powell: How have political tensions affected the dollar?

• Since the beginning of his second term as US President, Powell has been accused of being too slow to cut rates, and according to Trump, is hurting the US economy
• Often in response to Trump’s comments, Chair of the Federal Reserve Jerome Powell has defended a cautious approach in cutting rates, often citing the uncertain inflationary impact of tariffs
• The authority of any US President to fire the Fed Chair is legally unclear, not to mention entirely unprecedented, with the Federal Reserve intended to be politically unbiased and separate from the US government

In an era where the line between politics and economics is becoming increasingly blurred, this is perhaps nowhere more apparent than in the somewhat shaky relationship between US President Donald Trump and Jerome Powell, the Chair of the Federal Reserve.

Although it seems a millennia ago, pun not intended, it would be Donald Trump himself who would first nominate Jerome Powell for the position of Fed Chair in 2017, who would subsequently assume office in February 2018.

Having his tenure extended under President Joe Biden, it would be fair to say the relationship between the two magnates of the American economy has soured significantly, with Trump seemingly forgetting that Powell was initially his nomination, according to minutes from an Oval Office meeting in July:

“He’s a terrible Fed Chair. I was surprised he was appointed. I was surprised, frankly, that Biden put him in and extended him.”

¹Trump on Jerome Powell, speaking to reporters at the White House, 07/16/2025

Put simply, tensions have mounted this year as Trump’s demands for lower rates have almost entirely fallen on deaf ears. Powell and his board of decision-makers have only voted to cut lending rates once since December 2024, stating a commitment to ‘following the data’ when making monetary policy decisions, while simultaneously maintaining the Fed’s independence from any political leaning.

The jury is still out as to whether Trump could, at least in theory, remove Powell from his position as Fed Chair, but it would almost certainly come with a significant legal challenge.

As things stand, and while tensions show little sign of slowing down, let’s further examine the relationship between Trump and Powell, the associated implications for monetary policy, and, crucially, the impact on the greenback.

Before we start, let’s first ascertain a basic economic principle:

• If the market believes interest rates are to be raised, either in the near future or priced in to the longer term, the respective currency will increase in value, all other variables remaining the same.
• If the market believes interest rates are to be lowered, either in the near future or priced in to the longer term, the respective currency will decrease in value, all other variables remaining the same.

“I think he’s a very stupid person, actually“

²Donald Trump on Jerome Powell, speaking at NATO Heads of State and Government Summit, 06/25/2025.

Albeit not the first time the US president has shared some choice words about Jerome Powell, Trump was far from complimentary during his speech at the June 25th NATO summit.

Speaking shortly after the Federal Reserve’s June decision, where rates were maintained at ~4.5%, there is no doubt that Trump was disappointed that they were not lowered, having made demands for a whole percentage point cut earlier in the month.

Coupled with calling Powell stupid, Trump also mentioned that he already had “three or four people” in mind to succeed Powell.

It stands to reason that, if given the choice, Trump would undoubtedly make an appointment more sympathetic to Trump policy, and ultimately more likely to cut rates. Markets also reached a similar conclusion, with the dollar (DXY) falling to its yearly lows in the days that followed.

“In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs“

³Jerome Powell, speaking at the ECB Forum on Central Banking, 07/01/2025.

Somewhat expectedly, Powell cited the uncertainty of the inflationary impact of trade tariffs as justification for maintaining rates in the June 18th decision.

Whether intentionally or otherwise, Powell’s words acted as a retort to Trump’s comments earlier in the month, with the grand irony being that, according to Powell, Trump’s own trade policy had, at least in part, prevented rates from being lowered.

With June’s interest decision representing the second time the FOMC had voted to maintain rates since the introduction of ‘Liberation Day’ tariffs, Powell’s comments further commitment to the now-infamous ‘wait-and-see’ strategy, using uncertainty around tariffs as justification.

From this moment on, markets predicted that, despite Trump’s demands, rates would be maintained for the foreseeable future, offering some dollar upside in the weeks that followed, with the DXY gaining around 2.40%.

“I think he’s done a bad job, but he’s going to be out pretty soon anyway. In eight months, he’ll be out. People aren’t able to buy a house because this guy is a numb skull. He keeps the rates too high, and (is) probably doing it for political reasons”

Donald Trump on Jerome Powell, speaking at a White House Meeting with the Philippine President, 07/22/2025.

Using the nickname “too late” when referring to Jerome Powell, President Trump once again renewed his verbal offensive on Powell as part of a July White House meeting with Philippine President Ferdinand Marcos Jr.

Speaking ahead of the July decision, Trump not only appealed to Americans who are unable to buy a home due to higher interest rates on mortgage repayments but also alleged that rates were being maintained higher for political reasons, with the last rate cut performed prior being in the run-up to the US election.

While the president's authority to fire Jerome Powell is legally complex and entirely unprecedented, the notion that Trump would remove Powell in favor of a more dovish candidate would cause the dollar to sell off in the following 48 hours, losing just shy of 1% in value.

“Turning to inflation, higher tariffs have begun to push up prices in some categories of goods…The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts.“

5Jerome Powell on the inflationary impact of tariffs, speaking at the Jackson Hole Symposium, 08/22/2025

Speaking at the annual Jackson Hole meeting, Powell again justified the Fed’s cautious approach to interest rate cuts, citing uncertainty surrounding tariffs as the primary justification.

While Powell’s words on inflation and trade tariffs surprised few, interestingly, the comments made during his speech at the event would surprise markets, coming across as more dovish than expected.

Naturally, the dollar was sold broadly, and markets re-adjusted their expectations for Fed monetary policy.

Responding later that afternoon, Trump, somewhat predictably, responded to Powell once again using the nickname “too late” while simultaneously claiming credit for the corresponding rally in US equity pricing.

“We have a person that’s not at all smart right now. He should have been much lower, much sooner“

⁶Trump on Powell, speaking to reporters aboard Air Force One en route to Japan, 10/27/2025.

En route to Japan to meet the new Japanese Prime Minister, Sanae Takiachi, Trump once again shared his thoughts on Powell, renewing the same criticisms.

At the time of writing, this is the most recent comment Trump has made regarding Powell and Federal Reserve monetary policy, likely deliberately timed before the FOMC meeting later this week.

For the record, the Federal Reserve is widely expected to cut interest rates in its October decision.

Further to Trump’s comments, US Treasury Secretary Scott Bessent has also shared that the administration is currently narrowing its list of candidates to replace Powell, whose term as Chair expires in May 2026.

With the back-and-forth between the two ongoing, even the most fierce Trump supporters would have to concede that one party is perhaps more diplomatic than the other.

While the jury remains out on whether Trump could replace Powell from a legal standpoint, the relationship between the two certainly marks a unique time in history.

Footnotes:
¹Trump says he's 'surprised' Fed Chair Powell was appointed. Trump picked him in 2017. - YouTube, NBCNews

²https://www.nato.int/cps/en/natohq/official_texts_236705.htm

³ https://www.ecb.europa.eu/press/conferences/ecbforum/html/index.en.html

⁴https://www.ksl.com/article/51349391/trump-says-feds-powell-will-be-out-in-8-months

⁵https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm

⁶https://www.theintelligencer.com/business/article/trump-administation-narrows-list-of-potential-21123118.php