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Trump's pressure on Federal Reserve revives fears of politicized central banks
Former Argentine central bank chief Martin Redrado sees unsettling parallels between Donald Trump's attacks on the U.S. Federal Reserve and his own ousting in 2010, when political interference triggered years of economic instability.
From Buenos Aires to Washington: A familiar script
Redrado was fired as Argentina's central bank governor after refusing then-President Cristina Kirchner's demand to transfer reserves to pay national debt. Though he won a court battle, the standoff foreshadowed Argentina's later inflation crisis and currency collapse. Now, he warns the U.S. risks repeating the pattern.
"This seems more like an emerging market story," Redrado told the BBC, noting that Trump's efforts to influence the Fed-long a global model of independence-mirror tactics used in countries with weaker institutions.
Trump's campaign against the Fed
Since returning to office in 2025, Trump has accused Fed Chair Jerome Powell of mismanaging the economy by maintaining high interest rates, which increase government borrowing costs. His criticism escalated in August when he attempted to remove policymaker Lisa Cook, a move now before the Supreme Court.
Tensions peaked this month after Powell revealed the Justice Department had launched a criminal probe into cost overruns at a Fed property renovation. Powell dismissed the investigation as a "pretext," but analysts say the timing fuels suspicions of political motives.
"It is the road to a banana republic," former Fed Chair Janet Yellen told CNBC, warning against Trump's attempts to dictate monetary policy.
Janet Yellen, former U.S. Treasury Secretary
Economic risks of political interference
Economists argue central bank independence is critical to controlling inflation, a lesson hard-won after the U.S. stagflation crisis of the 1970s. Research shows countries where leaders pressure central banks to cut rates often face higher inflation, as short-term political gains override long-term stability.
A 2010-2018 study of 118 central banks found political interference-particularly from nationalist or populist leaders-correlated with rising prices. Turkey's experience under President Recep Tayyip Erdoğan offers a cautionary tale: after cycling through three central bank chiefs in three years to enforce his unorthodox low-rate policies, inflation soared past 50%.
Carola Binder, an economist at the University of Texas at Austin who led the study, says even the perception of political pressure can damage credibility. "People start expecting higher inflation, and those expectations become self-fulfilling," she said. While U.S. inflation expectations remain stable for now, Binder warns the conflict could still prove "inflationary."
Markets and institutions push back
Despite the drama, U.S. markets have reacted calmly, with analysts citing the Fed's committee-based decision-making-where the president appoints only 7 of 12 members-as a buffer against politicization. The dollar has weakened 8% against a basket of currencies over the past year, though economists debate whether the Fed's struggles are the primary cause.
Wall Street leaders and lawmakers from both parties have defended the Fed's autonomy, and Supreme Court justices have signaled skepticism toward Trump's firing of Cook, hinting the bank may receive special legal protection. Still, experts note the Fed's independence relies more on tradition than ironclad law-ranking in the bottom third globally for legal safeguards.
What's next for the Fed
The Supreme Court will hear arguments on Cook's dismissal in the coming weeks, while Powell's term as chair expires in May. Trump is expected to nominate a successor, raising stakes for the bank's future direction.
Jennifer McKeown, chief global economist at Capital Economics, downplays fears of a U.S. collapse akin to Argentina's or Turkey's, but cautions: "There's not a switch that says faith in institutions has been lost. But the risk is real."
"President Trump is really defeating himself by having this kind of fight. He should know better."
Martin Redrado, former Argentine central bank governor
Global lessons
Carolina Garriga, a political scientist at the University of Essex, notes that economic damage from politicized central banks is often intertwined with broader democratic erosion. Still, she points to immediate market reactions-like the dollar's dip after the Fed probe was announced-as evidence that investors treat independence as non-negotiable.
For now, the U.S. appears far from Argentina's 2010 crisis. But Redrado's warning lingers: "The strength of institutions matters. Once you start testing those limits, the consequences can spiral."
