Why Trump-Powell tussle is dragging down the US dollar

What does Trump wants Jerome Powell to do?

US President Donald Trump wants Federal Reserve’s Chairman Jerome Powell to cut the interest rates. Trumps cites that there is “virtually no inflation” and the energy cost is coming down. Trump has warned that the US economy could slowdown if the interest rates are not brought down immediately. He has also made comparison with Europe stating that it had cut rates seven times.

The European Central Bank (ECB) has cut its refinancing rates from 4.5 per cent to 2.4 per cent. The US Federal Reserve’s interest rate has come down from the range of 5.25-5.5 per cent to 4.25-4.5 per cent.

What is Powell’s stance?

Jerome Powell has clearly said that the US central bank will act independently without any political influence and focus on its dual mandate — which is, maximise employment and stable prices.

In its recent meeting in March Powell had raised concerns about increasing inflation in the first two months of this year. The Fed had raised their inflation forecast for 2025 to 2.8 per cent from 2.5 per cent projected earlier. He also said that tariff and nontariff inflation will have to be worked out.

So, unless the Fed gets a clarity on the actual impact of the tariffs on inflation, it may not be in a hurry to cut rates immediately.

Why is the dollar weakening because of this tussle?

Interest rates of a country is one of the major drivers of its currency. Higher the interest (compared to other countries) — the interest rate differential — stronger will be the currency and vice-versa. Since Trump is insisting on lower interest rates, the dollar is weakening. Also, Trump threatening to fire Jerome Powell is making the investors lose confidence.

This coupled with the uncertainty on the tariffs has reduced dollar’s safe-haven status and the market is now shifting towards other safe assets such as gold and Yen.

Going ahead, what will be the likely outcome of this on the US dollar?

For now, the dollar is likely to remain weak. As indicated in its March meeting, we will have to wait for the Fed to come out with clarity on the actual impact of tariff on inflation. we will be able to know that only in June when the Fed releases its next economic forecast. Until then the dollar is likely to remain subdued.

Going by the charts, technically, the dollar index which is currently at 98.35 has room to test 96. It will be important to see whether it is managing to bounce back from there or not.

What does the law say about President Trump firing the US Fed Chairman?

According to the law, the US President can fire any Commissioner only in the following cases — inefficiency, neglect of duty or malfeasance (wrongdoing). So, unless Powell is charged and proved under any of the above-mentioned three scenarios, Trump cannot fire Powell.

Jerome Powell’s tenure is ending only in May 2026.

Published on April 22, 2025