Trouble at the Fed? What C-Suite Executives Need to Know

C-Suite Risky Business

With Jerome Powell’s term as Chair set to expire in May 2026, we may be on the brink of a monetary policy realignment that touches everything from inflation to global trade. President Trump has, of course, made no secret of his criticism of the Fed’s reluctance to cut rates more aggressively and has floated the idea of removing Powell early or naming a successor well ahead of the transition. Such a move would significantly weaken Powell’s authority and call into question the Fed’s ability to remain above the political fray.

Trump’s criticisms of the Fed aren’t new, but his second-term ambitions do reflect a more assertive stance, as the new administration is actively exploring legal pathways to dismantle the long-standing protections that insulate the Fed from direct political control. At the same time, a shortlist of potential successors to Powell is emerging, with some candidates already signaling their willingness to align monetary policy more closely with the White House’s growth agenda.

New Business Risks

Trump has explicitly argued that lowering interest rates would help reduce the federal deficit, a view rooted in the assumption that lower debt servicing costs will ease budget pressures. Historically, however, this line of thinking has proven risky. The only time the Fed explicitly held rates low to reduce government interest costs was immediately after WWII. The result was a sharp rise in inflation in the late 1940s, ultimately leading to the landmark 1951 Treasury-Fed Accord that re-established the central bank’s independence and shifted its focus to price stability. This episode remains a foundational moment in the Fed's institutional history.

The implications of a less autonomous Fed extend far beyond interest rates alone, as financial markets depend on the Fed’s credibility to function smoothly. If investors begin to doubt the central bank’s independence, the ripple effects could be profound. Bond markets may react with volatility, pushing yields higher in anticipation of inflationary pressures. And it’s important to remember that, while the Fed controls short-term rates, markets dictate long-term ones. If the Fed is seen as sacrificing its inflation target, long-term rates may actually rise, undermining the very deficit-reduction goals that the administration is pursuing. With the majority of U.S. government debt issued at longer maturities, this could backfire, leading to higher federal interest payments.

Foreign investors, who currently hold roughly one-third of all U.S. Treasury debt, could demand risk premiums or reduce their exposure altogether, raising borrowing costs and tightening financial conditions across the board. But the impact won’t be limited to yields alone. If inflation expectations become unanchored, the dollar may fall, and risk premiums for U.S. assets may rise as markets begin pricing in broader concerns about economic mismanagement and institutional erosion. While the risk of an outright U.S. default is more tied to fiscal dynamics than monetary policy, a perception that the Fed is “printing money” to monetize deficits could reinforce those fears.

And the consequences of Fed politicization wouldn’t be confined to U.S. markets alone. Emerging economies, many of which carry large amounts of dollar-denominated debt, would be especially vulnerable. Currency volatility could increase refinancing costs, lead to capital flight, and in some cases trigger sovereign debt crises. These effects would likely cascade through global supply chains, particularly in sectors dependent on trade finance, such as manufacturing, pharmaceuticals, and energy.

The dollar’s role as the world’s reserve currency could also come under scrutiny as any erosion of trust in the Fed’s capacity to act independently in a crisis could accelerate moves by sovereign wealth funds and central banks to diversify reserves into alternative currencies or assets. Such a development would mark a significant shift in global economic power and create heightened uncertainty for multinational firms that operate across borders or rely heavily on dollar-based trade. In fact, some central banks have already been increasing their gold reserves in anticipation of greater geopolitical and monetary fragmentation.

The U.K.’s recent experience provides a cautionary tale. In 2022, then-Prime Minister Liz Truss unveiled a budget packed with unfunded tax cuts that triggered a sharp sell-off in bonds and the pound. The resulting market turmoil was so severe that it forced her resignation after just 45 days, famously failing to outlast a head of lettuce in a viral tabloid stunt.

At the same time, we should avoid slipping into apocalyptic thinking. From 2008 to 2013, some monetarists loudly warned that deficits and near-zero interest rates would unleash runaway inflation. It didn’t happen. In fact, the policy may have been too timid. Even if a Trump-appointed Fed Chair were to slash rates by a few points, the outcome may not be catastrophic. As the 2021 inflation spike showed, inflation, even at uncomfortable levels, does not necessarily cripple economic performance and can even produce strong nominal growth and corporate earnings. However, it does generate intense political pressure for stabilization, which in turn constrains policymakers.

That’s why the real risk here is less about any one decision and more about erosion over time. A politicized Fed may not trigger an immediate crisis. But it could gradually undermine market confidence, institutional credibility, and global economic leadership, much as we’ve already seen with the weakening of multilateral trade institutions.

C-Suite Implications

For C-Suite executives, it may be tempting to dismiss all this as merely a political issue, but the business implications are simply too large and plausible to ignore. This isn’t about sounding alarms but about developing organizational resilience while there’s still time. The risk of Fed politicization must be incorporated into enterprise-level strategy and capital planning, not merely as a tail-risk scenario, but as a plausible feature of the economic landscape in the next 12 months and beyond.

Start with capital structure. Companies should prepare for a wider range of interest rate outcomes, including abrupt policy shifts that may not align with macro fundamentals. This means evaluating the flexibility of existing debt arrangements, assessing the timing of new issuance, and building liquidity buffers to navigate periods of rate instability. Inflation preparedness must also be rethought. Traditional approaches such as cost-cutting and procurement optimization are not enough. Leaders should consider geographic diversification of supply chains, renegotiation of supplier contracts to include inflation-linked clauses, and accelerated automation to reduce wage exposure in tight labor markets. Currency risk is another critical area. Businesses with significant overseas revenue or import costs denominated in dollars should explore hedging strategies and alternative reserve structures. In some cases, it may even make sense to hold a portion of corporate liquidity in non-dollar assets, such as euros or gold, particularly if counterparties begin doing the same.

Lastly, strategic planning processes can no longer treat Fed credibility as a given. Boards and executive committees should stress-test against a world in which inflation expectations are unanchored, foreign capital becomes more selective, and monetary policy reacts to political cycles rather than economic signals. To be clear, this isn’t about predicting political outcomes but about ensuring organizational resilience in a changing business environment where traditional institutional norms are no longer a given.

Given the stakes, CFOs in particular cannot afford to remain passive observers. The moment to act is now to ensure their organizations aren’t surprised by what could very well be the next Gray Rhino – a highly visible, high-probability risk that too many still fail to prepare for.

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Sources

“The real reason Trump wants to fire the Fed Chair,” Brainard, Washington Post (July 2025)

“Fed Independence: How Concerning?”, Goldman Sachs (2025)

“Can a Footnote Save the Fed?”, Eichengreen, Project Syndicate (May 2025)

“The Apprentice: Federal Reserve Edition”, Rogoff, Project Syndicate (May 2025)

“Financial Stability Requires an Independent Fed”, Johnson & Liikanen, Project Syndicate (May 2025)

“What if Trump Subdues the Fed?”, Eijffinger & Mujagic, Project Syndicate (Dec 2024)