A New Fed Era?
What has President Trump said this week?
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What has President Trump said this week? 〰️
1. The Dollar Under Pressure
The U.S. dollar has weakened in recent weeks, reflecting shifting expectations around Federal Reserve policy and broader policy uncertainty rather than a fundamental change in the dollar’s role in the global financial system. Markets have increasingly priced in the possibility of additional Fed rate cuts in 2026, narrowing the interest-rate advantage of U.S. assets relative to other major economies, a dynamic that typically pressures the dollar (The Washington Post, 2026). According to the BBC, the dollar fell to its lowest level in four years against a basket of currencies, sliding roughly 3% in about a week and hitting multi-year lows against both the euro and the pound (BBC, 2026).
The recent move builds on a broader downtrend. The dollar index fell nearly 10% in 2025, its worst annual performance since 2017. Renewed volatility this year has coincided with trade tensions related to Greenland and speculation around U.S. policy direction, including questions about potential coordination with Japan to stabilize the yen (BBC, 2026). Reuters reporting suggests that any near-term rebound could be limited if investors continue to anticipate Fed rate cuts or grow more uncertain about central-bank independence, even as U.S. economic data remains relatively resilient (Reuters, 2026).
From an economic and investment perspective, a weaker dollar has mixed effects. It can improve competitiveness for U.S. exporters and boost overseas earnings when translated back into dollars, but it also reduces purchasing power for U.S. consumers and raises import prices, potentially complicating the inflation outlook. The dollar’s decline has coincided with a sharp rise in alternative stores of value, with gold prices roughly doubling over the past year, and modest gains across several major and emerging-market currencies (BBC, 2026). While analysts do not yet describe the move as a broad “sell America” trade, U.S. equities remain near record highs and Treasury markets relatively contained, ING Group, the Dutch multinational banking firm, expects the dollar to fall an additional 4%–5% in 2026 if rate-cut expectations persist and growth outside the U.S. improves (BBC, 2026). The key variable remains whether Fed policy expectations stabilize and whether clear, data-driven communication can limit further currency volatility (Atlantic Council, 2026).
2. Kevin Warsh For the Fed
President Trump nominated Kevin Warsh to serve as Chair of the Federal Reserve. Warsh served on the Fed’s Board of Governors from 2006 to 2011 and has remained active in debates over inflation, financial regulation, and the Fed’s post-crisis policy framework. During and after his tenure, he developed a reputation as an inflation hawk, frequently arguing that prolonged low interest rates and large-scale asset purchases could fuel higher inflation over time (The Wall Street Journal, 2026). More recently, however, Warsh has argued that AI-driven productivity gains enable faster growth without stoking inflation, supporting lower interest rates. President Trump said last Wednesday that Warsh would not have been his pick had he ever pushed for higher rates, a signal of how closely the administration is watching, and weighing in on, the Fed’s future policy direction (The Washington Post, 2026; NBC News, 2026).
The nomination is closely watched because the Fed Chair’s credibility and perceived policy approach can influence rate expectations, risk premia, and financial conditions even before any formal policy changes occur. Reporting places the decision within a debate over a “divided” or “K-shaped” economy, where inflation has eased but growth and labor market data remain firm, complicating judgments about the timing and pace of future rate cuts (Politico, 2026). Market reaction reflects this tension: investors largely expect Warsh to defend the Federal Reserve’s institutional independence, but remain cautious about assuming an easy-money stance given his long-standing support for shrinking the Fed’s balance sheet. While Warsh has recently argued for faster rate cuts, he has also said that reducing a balance sheet heavy with U.S. Treasurys could offset some of the stimulus from lower rates, leaving uncertainty about the net policy direction (The Wall Street Journal, 2026).
The process itself carries market significance because the Federal Reserve’s independence is closely tied to its appointment and confirmation framework. The president nominates the Fed Chair, and the nominee must be confirmed by the Senate. While chairs are typically drawn from sitting governors, a nominee can also be appointed to the Board and then elevated to chair, with each step requiring Senate approval. Key watch items include the timing of confirmation hearings and votes, how lawmakers frame questions around Fed independence, and whether Warsh’s nomination reshapes expectations for monetary policy in 2026, particularly in markets sensitive to any perceived shift in the Fed’s reaction function (The Washington Post, 2026; Politico, 2026).
3. Shutdown Disrupts Data, Not Growth
A partial U.S. government shutdown began in late January after Congress failed to pass full-year appropriations for several federal departments by the funding deadline, amid disagreements over spending levels and policy provisions. Because appropriations for other agencies had already been enacted, only departments without finalized funding were affected, while much of the federal government continued operating. As a result, disruptions were significant but not economy-wide, with many services remaining uninterrupted (The Washington Post, 2026; NPR, 2026).
The shutdown ended after Congress approved a more than $1 trillion spending package. The measure funds most federal government agencies through the end of the fiscal year in September. Funding for the Department of Homeland Security was extended only through the end of next week, leaving a small portion of the government operating under a short-term extension. The legislation passed the House by a narrow 217–214 vote and was signed by President Trump, formally reopening affected agencies while postponing some unresolved budget issues (Politico, 2026; NPR, 2026). The shutdown briefly disrupted economic data, with the Bureau of Labor Statistics delaying releases including the January jobs report, CPI, and real earnings (The Hill, 2026; BBC, 2026).
The reliance on temporary extensions keeps the risk of renewed disruptions elevated, with economic effects concentrated in federally exposed sectors rather than headline GDP. Even partial shutdowns can delay federal payments, permitting, contract execution, and data releases, affecting defense services, transportation and aviation oversight, healthcare administration, and labor-market analysis. Repeated fiscal standoffs can weigh on business confidence and planning, extending the economic impact beyond the shutdown period itself (The Washington Post, 2026; Politico, 2026; The Hill, 2026; BBC, 2026).