Why Trump’s push to control the Fed could raise US borrowing costs instead of lowering them

Why Trump’s push to control the Fed could raise US borrowing costs instead of lowering them

US President Donald Trump has intensified his campaign to force the Federal Reserve to slash interest rates by as much as three percentage points, far beyond what most economists consider justified. His criticism of US Fed Chair Jay Powell has become personal and public, and on Monday he moved to fire governor Lisa Cook, citing unproven allegations of mortgage fraud. Cook has vowed to fight her removal in court, setting up a potential legal battle over the independence of the central bank, the Financial Times reported.

Trump’s plan to reshape the board

Trump has already nominated Stephen Miran, a loyal ally, to fill a vacant Fed seat and still counts on support from board members Michelle Bowman and Chris Waller, both appointed during his first term. With Powell’s term as chair ending in May 2026, the White House sees an opportunity to tilt the balance of the seven-member board toward Trump-aligned voices. Economists warn that if such a bloc gains control, markets may begin to view the Fed as beholden to political rather than economic considerations.

Market reaction and inflation fears

Investors have already shown concern. On Tuesday, the gap between two-year and thirty-year Treasury yields widened to its largest in three years, a sign of growing uncertainty about future rates. The US dollar slipped against major peers, while analysts noted that inflation expectations could climb if markets lose faith in the Fed’s ability to act independently. A weaker dollar and steeper yield curve point to fears of higher borrowing costs, even as Trump pushes for aggressive cuts to short-term rates.

Risks to US debt costs

While the Fed directly controls short-term interest rates, America’s borrowing costs are shaped more heavily by long-term rates, since the average maturity of outstanding government debt is around six years. If bond investors believe political pressure has compromised the Fed, they may demand higher returns to hold US debt, raising financing costs for Washington. Some economists argue that this erosion of credibility could be more damaging than high short-term rates, leading to persistent inflationary pressures.

A potential paradigm shift

Analysts warn that Trump’s efforts could spark a broader transformation in US monetary policy. Blake Gwinn of RBC Capital Markets said the country may be “only a handful of developments away” from a paradigm in which the president effectively sets monetary policy. That would upend decades of precedent in which the Fed has acted independently to pursue its dual mandate of stable prices and maximum employment. Such a shift could rattle foreign investors and diminish demand for US assets.

Institutional safeguards and uncertainties

White House officials insist Trump is acting lawfully and say Cook’s removal strengthens the Fed’s accountability. But experts argue the courts may see it differently. Previous Supreme Court rulings have offered some protection to the Fed as a uniquely structured institution, though the boundaries remain unclear. Economists also note that the Fed retains tools such as bond-buying programs to counter sharp rises in long-term rates, while the US’s status as the world’s largest debt market offers some insulation. Still, few dismiss the risks of undermining investor confidence in America’s monetary framework.

What comes next

For now, both the Fed and the administration say they will abide by court rulings on Cook’s dismissal. Powell has pledged to remain as chair until his term ends next May, though it is unclear if he will stay on as a governor afterward. Economists caution that the real test lies not in the immediate political drama but in whether markets begin to price in a lasting decline in Fed independence. If that happens, Trump’s pressure campaign could backfire—raising, rather than lowering, the very borrowing costs he is trying to cut.