A Trump challenge could undermine the Federal Reserve’s autonomy—and shake global confidence in the dollar

The Trump administration is set to challenge a recent judicial decision that could undermine the Federal Reserve’s independence by opening the door to political meddling in its leadership. This response has fueled worries about what it could mean for the U.S. dollar’s reputation worldwide and the steadiness of international financial systems. Central to the debate are warnings from former Federal Reserve Vice Chair Lael Brainard, who has cautioned that there’s a real threat of several regional Fed presidents being ousted for political reasons by President Donald Trump. Brainard, who was part of the Fed’s board between 2014 and 2023, brought these concerns to light after Trump tried to remove Governor Lisa Cook, alleging she was involved with falsified mortgage paperwork. If Trump is successful, he could gain control of a majority on the Board of Governors, which will be voting on new terms in February 2026.

Brainard’s comments highlight increasing fears that the Federal Reserve’s autonomy—a vital component of its trustworthiness—may be at risk. The chance of political intervention casts doubt on the Fed’s capacity to uphold its responsibilities of price stability and maximum employment, both of which are critical to the U.S. dollar’s image as a reliable global reserve currency. Should faith in the Fed’s independence waver, it could set off ripple effects in global markets, where the dollar’s supremacy is already being questioned due to rising geopolitical strains and diverging policy approaches. While the U.S. dollar remains the chief currency for global reserves, trade, and financial dealings—with over 58 percent of worldwide foreign exchange reserves in dollars as of 2024—this position faces new challenges as the possibility of increased political sway over the Fed grows.

The impact of the administration’s appeal reaches beyond internal politics. The Federal Reserve has long played an essential role in upholding global financial balance, especially during times of crisis, and perceptions of its politicization could damage trust in the dollar as a safe investment. This issue is especially pressing given the current economic landscape, where the dollar’s strength has been bolstered by a more aggressive Fed, climbing Treasury yields, and strong job numbers. The U.S. Dollar Index (DXY) has risen above 110.00, while the euro and pound have both lost ground relative to the dollar. These shifts underline how deeply the U.S. financial system is woven into global markets and how the Fed’s choices have widespread repercussions.

In addition, new studies have emphasized how U.S. monetary policy reverberates across other economies, notably in China, which absorbs much of the volatility originating from U.S. markets. This pattern illustrates the tight links between global financial networks and suggests that any weakening of the Fed’s autonomy could heighten overall risk. The dollar’s primacy as a medium of exchange and value storage is further cemented by its overwhelming use in stablecoin issuance, with nearly all stablecoins pegged to the dollar. These trends demonstrate the dollar’s deeply rooted presence in international finance, but also reveal potential weaknesses that could be exposed in times of increased geopolitical or economic stress.

Even as the Trump administration proceeds with its legal efforts, the dollar’s leading role seems secure for now. Central banks continue to depend on the dollar for their reserves, and the U.S. financial system stands out for its scale, flexibility, and institutional robustness. Yet, the possibility of political influence over the Fed brings a layer of uncertainty that could erode confidence over time. As Brainard and others have pointed out, preserving the Fed’s independence is not just a national issue but is crucial for the dollar’s place in the world economy. The outcome of the administration’s appeal will be critical in deciding whether the Fed’s autonomy is restored or if political pressures will increase, carrying major implications for the dollar’s trajectory.