{"id":510947,"date":"2026-01-12T13:55:11","date_gmt":"2026-01-12T13:55:11","guid":{"rendered":"https:\/\/www.europesays.com\/us\/510947\/"},"modified":"2026-01-12T13:55:11","modified_gmt":"2026-01-12T13:55:11","slug":"donald-trump-tries-to-break-the-fed-what-the-clash-means-for-india","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/510947\/","title":{"rendered":"Donald Trump tries to break the Fed. What the clash means for India"},"content":{"rendered":"

The latest clash between U.S. President Donald Trump<\/a> and Federal Reserve Chair Jerome Powell marks the most serious escalation yet in a long-simmering conflict over U.S. monetary policy. <\/p>\n

Powell said the Department of Justice on Friday served the Fed \u201cwith grand jury subpoenas threatening a criminal indictment related to my testimony before the Senate Banking Committee last June.\u201d Federal prosecutors are conducting a criminal investigation of Powell relating to the $2.5 billion renovation to the central bank\u2019s headquarters in Washington, D.C., and his related testimony to Congress.<\/p>\n

Also Read: Fed’s Powell says administration has threatened criminal indictment over his Senate testimony<\/a>
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Powell called the threats a “pretext” aimed at putting pressure on the Fed to cut interest rates. The U.S. dollar fell broadly, U.S. stock futures slid and Treasury futures rallied. <\/p>\n

\u201cThe threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,\u201d Powell said in a video statement tweeted by the Fed\u2019s X account. The chairman warned that the outcome of the investigation will determine the future of the central bank\u2019s decisions. \u201cThis is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions \u2014 or whether instead monetary policy will be directed by political pressure or intimidation,\u201d Powell said.<\/p>\n

\"ETLive EventsAlso Read: Fed-White House rift rattles markets as Powell flags political pressure<\/a>
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Trump denied having any knowledge of the Justice Department’s investigation into the Federal Reserve after the agency subpoenaed the central bank. \u201cI don\u2019t know anything about it, but he\u2019s certainly not very good at the Fed, and he\u2019s not very good at building buildings,\u201d Trump said of Federal Reserve Chair Jerome Powell in a brief interview with NBC News Sunday night.
The move comes after a yearlong campaign by Trump to pressure Powell to lower interest rates, and Powell said Sunday he believed the latest move by the administration was part of that effort. Powell’s term as chairman ends in May, but his position as a member of the Federal Reserve’s Board of Governors doesn\u2019t expire until 2028.Powell says the criminal probe linked to his congressional testimony represents a direct attempt to coerce the central bank into aligning policy with presidential preferences, underlining that the independence of the Federal Reserve itself is now openly at stake.<\/p>\n

Central bank autonomy rests on the premise that monetary policy decisions, especially interest rates, are made on the basis of inflation, employment and financial stability, not electoral cycles or political expediency. Powell terming the investigation as a \u201cpretext\u201d suggests that the administration is testing the limits of executive influence. Even if no indictment ultimately materialises, the threat alone introduces a chilling effect, indicating that deviation from White House priorities could carry personal consequences for Fed governors.<\/p>\n

How and why Trump is breaking in the Fed
Trump\u2019s confrontation with the Fed has followed a consistent pattern of public criticism, personal attacks on Powell\u2019s competence and persistent demands for lower interest rates. What distinguishes the current episode is the shift from rhetorical pressure to the use of legal mechanisms. By opening a criminal probe tied to Powell\u2019s official duties, the administration appears to be delegitimising the Fed\u2019s leadership while building a narrative that justifies Powell\u2019s removal or marginalisation.<\/p>\n

Powell\u2019s term as chair ends in May but he will remain on the board till 2026. Even if Trump lacks the legal authority to force Powell off the Board of Governors before 2028, sustained pressure could make Powell\u2019s continued presence politically costly or operationally difficult. The broader message aimed not only at Powell but at all current and future Fed officials is: independence will be tolerated only so far as it aligns with Trump’s aims. <\/p>\n

Trump is trying to break in the Fed before he faces mid-term elections by year-end. His desperation for lower interest rates is based on his hopes of a quick and easy rebound in the American economy.<\/p>\n

Trump equates economic success with headline growth, rising stock markets and easy financial conditions. Lower interest rates deliver all three quickly. They stimulate credit, lift asset prices and support consumption, even if the underlying productivity gains are modest. For a president who treats markets as a real-time approval rating, rate cuts are the fastest way to engineer visible economic momentum. They work within months and are far easier than structural reforms.<\/p>\n

The U.S. government is now carrying historically high levels of debt. Lower interest rates dramatically reduce the cost of servicing that debt, at least in the short run. Every percentage point cut in average borrowing costs translates into hundreds of billions of dollars in interest savings over time. Thus low rates allow more fiscal spending without immediate political pain. Also, lower interest rates tend to weaken the dollar. Trump has consistently complained that a strong dollar hurts U.S. exporters and worsens the trade balance.<\/p>\n

Trump\u2019s background in real estate shapes his worldview. Lower interest rates directly boost property prices, refinancing activity and construction. Trump believes that cheap money equals prosperity, even if it raises long-term risks. <\/p>\n

Financial markets reacted swiftly to Powell\u2019s statement. The dollar\u2019s decline, the slide in U.S. equity futures, and the rally in Treasury futures reflect investor unease about policy credibility. At a deeper level, markets are repricing institutional risk\u2014the risk that U.S. monetary policy could become less predictable and more politicized.<\/p>\n

If investors begin to believe that rate cuts are being forced prematurely, inflation expectations could rise even if headline inflation remains contained. Over time, this would demand higher risk premiums on long-term bonds, pushing up yields and increasing borrowing costs across the economy. Ironically, an attempt to engineer easier monetary conditions through pressure could result in tighter financial conditions as markets compensate for diminished trust in the Fed\u2019s independence.<\/p>\n

For the American economy, the renewed Trump\u2013Fed feud introduces uncertainty at a sensitive juncture. If the Fed resists pressure and maintains a data-driven stance on rates, prolonged conflict could still weigh on confidence and investment. If the Fed yields by cutting rates faster or more deeply than warranted by data, the risks shift toward overheating, asset bubbles and a resurgence of inflation. Either outcome complicates the policy outlook. Businesses and consumers rely on the Fed not just for rate decisions but also for clear forward guidance. When that guidance is clouded by political confrontation, planning goes haywire, volatility rises and financial conditions can tighten even in the face of rate cuts.<\/p>\n

How will Trump-Fed feud impact India
For India, the immediate consequences would come through global financial channels. A sharp fall in the U.S. dollar, combined with expectations of aggressive Fed easing, could initially benefit emerging markets by boosting capital inflows and supporting currencies like the rupee. Indian equities and bonds often respond positively when U.S. rates fall or are expected to fall, as global investors search for yield.<\/p>\n

Lower U.S. rates directly reduce returns on dollar assets. Pension funds, hedge funds, sovereign wealth funds and global ETFs base their strategies on interest-rate differentials, currency expectations and growth prospects. If the Fed caves in to Trump’s bullying and cuts aggressively, U.S. Treasury yields will fall, dollar assets will become less attractive and capital will look for higher returns elsewhere. India, with higher real rates and deep markets, will attract capital flows from the U.S. And that’s just what it needs right now, after the record outflow of money in 2025. <\/p>\n

However, this upside could become fragile. If U.S. rate cuts are perceived as politically driven rather than economically justified, risk sentiment can reverse quickly. Investors will initially respond to lower U.S. rates by reallocating capital toward India, regardless of whether those cuts are politically driven. But the more those cuts undermine confidence in the Fed and the dollar, the more cautious and volatile those flows will become. Even with lower policy rates, long-term U.S. yields can rise if Fed credibility erodes. That can offset the benefit of rate cuts thus reversing capital flow to India. Higher long-term yields can also attract capital back to the U.S as they can reverse dollar weakness.<\/p>\n

So, if the Fed comes to be seen as Trump’s puppet instead of an independent, data-driven institution, U.S. long-term yields will rise despite lower rates, the dollar can strengthen, risk premiums will rise due to uncertainty and unpredictability. Such a situation can force foreign investors to cut emerging markets exposure which will mean capital outflows from India or at least sharp volatility. <\/p>\n

If U.S. policy uncertainty leads to higher long-term Treasury yields, global borrowing costs could rise despite headline rate cuts. That would affect Indian corporates accessing overseas debt markets and could increase the government\u2019s external financing costs indirectly. <\/p>\n

(With inputs from agencies)<\/p>\n","protected":false},"excerpt":{"rendered":"The latest clash between U.S. President Donald Trump and Federal Reserve Chair Jerome Powell marks the most serious…\n","protected":false},"author":3,"featured_media":510948,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[64,69,79,228467,228464,228466,228463,228460,67,132,68,6240,228465,228462,228461],"class_list":{"0":"post-510947","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-donald-trump","10":"tag-economy","11":"tag-powell-indictment","12":"tag-trump-fed-feud-impact-on-india","13":"tag-trump-fed-rate-cut","14":"tag-trump-vs-federal-reserve","15":"tag-trump-vs-powell","16":"tag-united-states","17":"tag-unitedstates","18":"tag-us","19":"tag-us-federal-reserve","20":"tag-us-monetary-policy","21":"tag-us-rate-cut-india-impact","22":"tag-us-rate-ut"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115882473952995495","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/510947","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=510947"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/510947\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/510948"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=510947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=510947"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=510947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}