Political pressure against the Federal Reserve is shaking markets, driving the U.S. dollar to a three-year low. Investor worries about the Fed's independence are undermining confidence, affecting currency levels, and overall economic stability.
These trends are taking place against the background of other economic concerns, such as continuing trade tensions. The confluence of these trends is strengthening the bearish sentiment for the U.S. dollar.
The dollar fell on Monday to a three-year low after investor faith in the U.S. economy took another blow with President Donald Trump's criticism of the Federal Reserve chairman, possibly threatening the central bank's autonomy.
Trump escalated his criticism of Fed Chair Jerome Powell on Monday via social media, calling him a "major loser" and calling on him to lower interest rates immediately.
Against a basket of currencies, the dollar fell as low as 97.923 on Monday, its lowest since March 2022. The currency also fell to a decade-low against the Swiss franc, while the euro broke above $1.15.
White House economic adviser Kevin Hassett suggested Friday that the administration and the president were still deciding whether they would be able to fire Powell after Trump stated Thursday that Powell's ouster "cannot come fast enough" as he called on the Fed to cut interest rates.
The central issue is the perceived loss of independence for the Federal Reserve. Investors count on the central bank to act in accordance with economic information and analysis, unaffiliated with political pressure.
Anything that suggests this independence has been lost can undermine confidence in the U.S. dollar and U.S. economic management in general.
There have been ongoing public criticisms of the Federal Reserve and its chairman, voicing discontent with interest rate policy and even going so far as to imply that the chair might be removed.
These comments have spooked investors, prompting fears of political interference in the central bank's decision-making.
The dollar also reached a seven-month low versus the yen. CFTC numbers indicated net-long positions in the Japanese yen set a record for the week through April 15.
"If the dual mandate of the central bank — maintaining price stability and achieving full employment — is watered down by the addition of new objectives set out by the White House, policymakers may find that they are powerless to tighten policy sharply in the event of an unexpected surge in prices," Corpay chief market strategist Karl Schamotta said in a research note.
Dollar weakness indicates broad market disquiet at political intrusion into the Fed. It destabilizes the economy and undermines U.S. investor confidence in finance management.