US President Donald Trump’s criticism of the Federal Reserve has sent shockwaves through the global economy. Central banks around the world have shown support for Fed Chairman Jerome Powell, who is under attack by the President.
The independence of central banks, allowing policymakers to set interest rates without political interference, is considered essential by investors and economists. A breach in this trust could destabilize financial markets worldwide.
The US dollar dominates global transactions, holding over 90% of cross-border trades. This makes a stable US dollar crucial for the rest of the world. Any disruption to the Fed’s role in supplying dollars through “swap lines” could threaten global financial stability.
Economists warn that a loss of confidence in the Fed could lead to reduced market predictability, higher anxiety among investors, and decreased economic growth. The example of Turkey, where President Erdogan pressured the central bank to cut interest rates despite soaring inflation, highlights the devastating consequences of undermining central bank independence.
As one former Bank for International Settlements manager noted, a breach in trust can have “devastating effects” on inflation and economies. With global markets already uncertain, Trump’s attack on the Fed adds to the risks of further instability.
Source: https://www.nytimes.com/2025/07/17/business/trump-powell-fed-global-reaction.html