Independence of the Federal Reserve System is one of the cornerstones of trust in the dollar. But in 2026 this independence faced a threat unlike anything seen in decades.

President Donald Trump has publicly demanded lower interest rates from the Fed, attempted to remove unpopular members of the Board of Governors, and supports frequent contact with Chair Kevin Wallschmidt. Although there is no direct evidence of influence over monetary policy, the mere fact of political pressure causes concern among investors.

For the dollar, this means increased risk: if markets stop believing in the Fed's independence, they may begin to bake inflation and devaluation into prices. That would undermine the main pillar of the American currency.

Why Fed Independence Matters for the Dollar

Central bank independence is not merely a formality. It guarantees that monetary policy is made based on economic data rather than political conjecture. When investors believe the Fed is independent, they trust the dollar. When this faith weakens, the dollar loses its main support.

History shows examples where political pressure on central banks led to catastrophic consequences. In the 1970s, President Richard Nixon exerted pressure on then-Fed Chairman Arthur Burns, demanding low interest rates. The result was double-digit inflation and years of dollar weakness. Paul Volcker, who raised rates to 20%, was needed to restore confidence in the American currency.

Today's situation somewhat recalls the 1970s. Trump, like Nixon, demands low rates without considering inflationary risks. And although new Fed Chair Kevin Wallschmidt so far demonstrates a firm stance, markets wonder: will his tenure last long enough?

What's Happening: Attempts to Remove Disliked Members

In 2026, the Trump administration made several attempts to remove Board of Governors members who do not share his views. The most prominent case is Liza Cook, a Board member appointed during Biden's presidency. Cook consistently opposed premature rate cuts, citing inflation risks.

Although the attempt to remove her has not yet been successful, the very fact of such pressure worries the markets. If Trump can appoint his own people to the committee, the balance of power could shift. This means future interest rate decisions might be made not on the basis of data, but on political expediency.

The Wall Street Journal reported that Trump supports frequent contact with Federal Reserve Chair Kevin Warsh, discussing issues ranging from the situation in Iran to AI investments. Although there is no direct evidence of influence on monetary policy, regular conversations between the president and the central bank head - this is already a violation of unwritten rules that protected the Fed from political pressure.

As long as markets believe the Fed will maintain its independence, the dollar remains relatively stable. But this faith is fragile. If investors begin to doubt whether the Fed is willing to fight inflation, even if it's inconvenient for the White House, the consequences could be serious.

First, what will happen is that inflation expectations rise. Investors will start demanding higher yields on American bonds to compensate for the risk of devaluation. This will lead to rising yields, but not because the economy is strong, but because confidence has been eroded. Paradoxically, this can weaken the dollar rather than strengthen it.

Second - foreign central banks that hold reserves in dollars will begin to consider diversification. If the dollar ceases to be a reliable asset due to political risks, they will seek alternatives. Gold, the euro, the yuan - all of these