President Donald Trump’s unprecedented drive to politicize Federal Reserve policy goes beyond domestic economic concerns. It threatens to erode American credibility on global financial markets and enables rivals to capitalize on fissures in the pillars of a dollar-based international order that anchors the world economy.

On the surface, Trump’s attack on the Fed reflects the president’s anger over the board not cutting US interest rates as quickly and deeply as he desires. To retaliate, he moved to remove Fed Governor Lisa Cook; courts blocked his move pending appeal, and he threatened a similar attack against the Fed’s highly regarded Chair Jerome Powell. It was an unprecedented attempt in the Fed’s 112-year history.

More significantly, Trump’s power play goes beyond the political theatrics as common to the White House as the daily press briefings. Many Fed watchers view the president’s moves as an attack on the central bank’s independence, a status mandated by laws and designed to insulate Fed policymakers from the whims of politicians eager to win elections rather than manage economic and financial stability.

Trump’s Push to Expand Executive Control

The fate of Cook, who won a fight to retain her job in lower courts, now rests with the US Supreme Court. However, Trump’s political influence extends to the highest court as well. He has dispatched his lawyers to win approval of a constitutional theory of governance that asserts a broad presidential removal power over independent officers, including the authority to fire Cook, force changes in US foreign policy, remove political opponents, reshape immigration enforcement, push unsustainable debt levels, and dismiss federal employees he considers disloyal. Indeed, the uncertain fate of the Fed’s independence is a microcosm of threats capable of eroding America’s global credibility and heightening fears among international bankers and global policymakers that Washington has lost sight of the Fed’s crucial role in world governance.

The uncertain fate of the Fed’s independence is a microcosm of threats capable of eroding America’s global credibility and heightening fears among international bankers and global policymakers

“The independence of the Fed is absolutely critical, and not just for this chairman, who I respect, but for the next Fed chairman,” Jamie Dimon, the highly respected CEO of JPMorgan Chase, told reporters during an August 2025 earnings call. Dimon and others see a linkage between attacks on the Fed’s independence and threats to the global economy.

A Weaker Fed Endangers Global Economy

“I think a breach of Federal Reserve independence would be a grave danger for the US economy and the global economy,” said Christine Lagarde, president of the European Central Bank. “If Fed policy wasn’t independent, if it was dependent on the political diktats from one person to another,” Lagarde said in an interview with Radio Classique, adding that then the impact on the US economy, the world’s largest, “would be very worrying” from a global perspective.

It would mean one thing if the president’s targets were limited to Cook or even Powell. But recent moves suggest that Trump’s goals go beyond individuals to the dominance of the board. He appointed his close ally, Stephen Miran, Chairman of the White House Council of Economic Advisers, to the Fed Board to replace a Biden appointee who inexplicably resigned before her term expired.

Miran promptly voted for a Trump-backed rate cut that was larger than the one-quarter point cut approved by the Powell-led board last week. In an unusual move, Miran said he would not resign from his White House post while serving on the board, giving the president even more leverage. If he can successfully sack Cook, he will have three appointees on the seven-member board and a chairman, whose term expires next May, but Powell could remain as a board member until January 2028.

 US Fed is the World’s Central Bank

The fates of Cook and Chairman Powell will play out in the coming weeks. Yet, longer-term concerns seem destined to continue as the wave of politicization unleashed by the president erodes core American values and credibility that have largely maintained peace since World War II. As the central bank for the world’s largest economy, the Fed plays a pivotal role in a political and economic order that is already starting to unravel as allies hedge their bets and adversaries seek to capitalize on the geopolitical uncertainty symbolized by threats to the Fed’s independence.

Adversaries seek to capitalize on the geopolitical uncertainty symbolized by threats to the Fed’s independence

Although an American institution, the US Fed, in effect, is the world’s central bank due to its critical role in the globe’s largest economy and as steward of the dollar, the world’s reserve currency. Global investors are heavily invested in the greenback and rely on the American Fed to make decisions based on credible economic data, independent of short-term political considerations.

An independent and credible Federal Reserve is essential for investors’ decisions on risk, exchange rates, capital flows, and inflation expectations. During financial crises, an independent Fed can also act quickly, often without political interference, to stem market turmoil, as it did during the 2008 financial crisis and the COVID pandemic.

“Any erosion of central bank autonomy,” the International Monetary Fund (IMF) warned in July, “could jeopardize efforts to maintain inflation expectations, potentially leading to significant financial, monetary, and macroeconomic turmoil. The uncertain and fluctuating environment necessitates clear and consistent communication from central banks along with the safeguarding of central bank independence, not just in legal frameworks but in actual practice.” The IMF issued its warning to all central banks, but it was clear that the message was aimed at the US Fed.

US Rivals Aim to Unmoor Dollar

The central role of the dollar in international finance confers huge benefits to America—privileges that only the most sophisticated voters understand. Strong global demand for dollars lowers US borrowing costs, enabling the nation to finance its ballooning deficits at low costs and maintain higher levels of consumption. More significantly, most dollars flow through the US banking system, empowering American officials to impose sanctions on adversaries, a potent foreign policy tool that the US can use to isolate rivals from the global financial system. If markets lose faith in the dollar, the impact could be profound.

A decline of faith in the dollar began before Trump took office and is likely to intensify as rivals pursue opportunities to capitalize on America’s unreliability. The share of global foreign exchange held in dollars fell from 71 percent in 1999 to 57 percent in 2025, accelerated in recent months by Trump’s confusing array of tariffs, America’s unsustainable debt, and Trump’s politicization of trade. The loss of influence is already being felt on the global stage. Trump‘s impotence in ending the war in Ukraine is just one example. American credibility also has taken a hit in the Middle East, where the US’s unconditional support of Israel upset broader, more hopeful efforts at peace through the Abraham Accords. NATO allies in Europe also openly wonder if American support for the alliance is only lip service.

The share of global foreign exchange held in dollars fell from 71 percent in 1999 to 57 percent in 2025, accelerated in recent months by Trump’s confusing array of tariffs, America’s unsustainable debt, and Trump’s politicization of trade

BRICS+ Nations Represent Threat

American rivals, particularly China, are positioning themselves as wealthy, state-directed economic alternatives that can fill gaps left by the US administration’s sharp cuts in foreign aid—the “soft power” initiatives that played a key role in America’s defeat of the Soviet Union during the Cold War.

China is a founding member of BRICS+, an informal alliance of some of the world’s fastest-growing non-Western economies, comprising Brazil, Russia, India, China, and South Africa, plus six other members added since the alliance’s formation in 2009. BRICS+ now accounts for about 55 percent of the world’s population and nearly 40 percent of global GDP. Capitalizing on its ties to BRICS+, China is leading a drive to topple the dollar from its privileged perch as the world’s leading currency. China would replace the dollar with gold, a digital currency, or some other financial tool.

International finance experts such as Lord Jim O’Neill, the British investment banker who coined the term “BRICS” in 2001, say the odds of the alliance toppling the dollar any time soon are low. O’Neill adds the unwieldy composition of BRICS+ suggests members will find it hard to forge a unified, credible threat. The alliance created a New Development Bank that is filling in gaps created by Trump’s budget cuts. Still, members prefer a loose governance structure that prioritizes flexibility over swift actions characteristic of more structured alliances. Nevertheless, Trump’s trade and political policies are creating changes in the global geopolitical calculus that could strengthen the coalition and prompt members to look for more reliable alternatives.

Trump’s trade and political policies are creating changes in the global geopolitical calculus that could strengthen the coalition and prompt members to look for more reliable alternatives

India-China Alliance “Game Changer”

O’Neill told an audience at the Chicago Council on Global Affairs last month that historical animosity between two powerful BRICS+ members, China and India, hinders the effectiveness of the alliance. “If only China and India could find a way to look past their differences and develop stronger ties,” he says, “that would be a game changer for the BRICS+, not to mention Asia and even global trade.”

Trump’s politicized trade policies just pushed the two nations closer. After India ignored an American ban on direct imports of Russian oil, Trump slapped a massive 50 percent tariff on a wide range of Indian exports.

Indian Prime Minister Narendra Modi called the tariffs “unfair, unjustified, and unreasonable” and promptly took bold diplomatic steps to improve relations with China. He traveled to the city of Tianjin in late August to meet with Chinese leader Xi Jinping at the Shanghai Cooperation Organization summit, also attended by Russian President Vladimir Putin.

Growing Lack of Faith in America

The Trump administration’s foreign policy has also alienated other BRICS+ members. The president demanded that Brazil drop charges against its former president, Jair Bolsonaro, for an attempted coup. Once again, the president imposed punishing tariffs and some sanctions to signal his displeasure. Brazil responded by convicting Bolsonaro and sentencing him to more than 27 years in prison. Despite US tariffs, Brazil reported a four percent increase in its exports, thanks to purchases made by China.

No one says displacing the US or even toppling the dollar from its privileged spot will be easy, but the downfall of a global power with a world reserve currency is not unprecedented. The British pound served as the dominant world reserve currency from the mid-1800s to the mid-1900s. The dollar overtook the pound after World War II, mainly because world leaders trusted America and its central bank to maintain order in an uncertain world emerging from a devastating war.

No one says displacing the US or even toppling the dollar from its privileged spot will be easy, but the downfall of a global power with a world reserve currency is not unprecedented

Faith in America to maintain that order is under threat, symbolized by the politicization of the Fed. Now unfolding is a crucial chapter in the story of America‘s ability to keep the power and authority that form the invisible pillars of its global dominance. What is new is that no one is certain how this story will end.