MW Trump and Powell are doing the 'Fed independence' dance. Time to show off your moves.

By Charlie Garcia

Adopt portfolio strategies flexible enough to handle inflation shocks and currency volatility

The Fed may be politically insulated on paper, but in practice, it's duct-taped to the Oval Office.

In Washington, D.C., myths die hard. Chief among them is the cherished "independence" of the U.S. Federal Reserve. Politicians swear it's sacred, economists worship it like a pagan idol, and central bankers - well, they pray daily that it's true. But like most bedtime stories, Fed independence is more fiction than fact.

Case in point: President Donald Trump recently lit up markets by lobbing accusations at Fed Chair Jerome Powell, claiming he had lowered rates to help former President Joe Biden get elected in 2020. "Powell has always been 'Too Late,'" Trump huffed, "except when it came to the Election period when he lowered to help Sleepy Joe Biden, later Kamala, get elected."

Then, in classic Trumpian fashion, late Tuesday the president walked it all back. "Never did," Trump said, when asked if he intended to fire Powell. "The press runs away with things."

Markets exhaled. Reporters rolled their eyes. Powell probably bought Tums in bulk.

But let's not confuse backpedaling with independence. After Trump's latest "just kidding" moment on Tuesday afternoon, Polymarket trimmed Powell's odds of getting the ax to 13% from 22% - not quite Vegas-level suspense, but still enough to suggest that Trump hasn't holstered the weapon, just flicked the safety back on.

If anything, Trump's on-again, off-again courtship with Powell's job is just the latest reminder that, while the Fed might seem politically insulated, it's duct-taped to the Oval Office thermostat for years.

Trump's Council of Economic Advisers chair, Stephen Miran, isn't exactly waving the independence flag either. Miran recently pointed out the obvious with the precision of a guy holding a flashlight in a blackout: The Fed's supposed autonomy is mostly mythological. Powell's Fed hasn't just brushed up against the White House - it's practically subletting.

As Miran put it, getting worked up about political pressure is missing the point - "the ship has sailed."

Dollar in doubt

So why lose sleep now? Because the U.S. dollar (DX00) is looking shaky. The U.S. Dollar Index DXY has shed roughly 9% since January, echoing its ominous 2007 decline before the last financial apocalypse. Traders have already priced in four Fed rate cuts this year - an easing binge usually reserved for economic hangovers.

Financial gurus are distributing plenty of free advice. Ray Dalio, the Yoda of macroeconomics, warns of long-term debt-cycle troubles, recommending inflation-proof assets and commodities - essentially hiding cash under the mattress. Warren Buffett, ever practical, urges investing in companies so resilient that even Congress couldn't ruin them. Bond investing veteran Jeffrey Gundlach advises bondholders to shorten durations - basically, keep one foot near the exit.

The dollar's troubles are global. Trump is reportedly gearing up for a sit-down with executives from Walmart Inc. $(WMT)$ and Target Corp. $(TGT)$ to discuss his latest round of tariffs. Bloomberg Economics estimates the plan could knock $2 trillion off global GDP by the end of 2027. Meanwhile, international investors are losing interest in owning U.S. Treasurys.

The weakening dollar isn't just a technical glitch - it's a flashing neon sign warning of trouble ahead. Currency volatility could quickly become everyone's economic migraine. Foreign central banks might soon step in, risking a global currency-devaluation race.

Take Switzerland, that sleepy Alpine vault pretending to be a country. Tariff threats loom over its exports, pushing the Swiss franc $(USDCHF.FOREX)$ close to currency Armageddon against the euro $(EURUSD.FOREX)$. Japan faces similar pressures - a stronger yen $(USDJPY.FOREX)$ might prompt intervention reminiscent of early 2000s dollar-buying sprees. The global solution? More quantitative easing, flooding markets with cash until asset prices look faker than Hollywood smiles.

Behind this monetary theater lies a harsh truth. Central bank policy is now as political as campaign bumper stickers. Trump's disdain for Powell highlights a broader populist trend - politicians wielding monetary policy openly as a weapon.

To thrive, you need portfolio strategies flexible enough to handle inflation shocks and currency volatility.

Why should investors care about Fed independence becoming Washington's latest punchline? Because predictability - the investor's greatest ally - is becoming rare. Historically, markets relied on a stable, boring Fed to price risks and allocate capital rationally. Now, with political pressures turning monetary policy into reality TV, investors face wild swings and dangerous bets.

Navigating this environment feels like reading a compass during an earthquake. Traditional portfolios built around currency stability and predictable Fed policy might soon look nostalgically quaint, like vinyl records or paying in cash. Long-duration bonds could keep investors awake if inflation revives. The stock market, already jittery from trade battles and political ping pong, might get shakier still.

Investors must confront the uncomfortable truth that the Fed's independence is ceremonial. You'll need portfolio strategies flexible enough to handle inflation shocks and currency volatility, diversifying into assets that are less vulnerable to political theatrics.

Of course, central banks will reassure markets that everything's under control. But such assurances increasingly deserve the same skepticism investors apply to overly optimistic financial disclosures: "Past autonomy is no guarantee of future independence."

In short, the comforting myth of Federal Reserve independence is fading into polite fiction. To thrive, you'll need a portfolio that's vigilant, nimble, and diversified in a financial landscape increasingly shaped by politics, not economics.

Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more.

More: The Treasury market is tipping its hand. Stock investors aren't seeing it.

Also read: Trump attacking Fed Chair Jerome Powell is a public relations ploy - and it's working

-Charlie Garcia

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April 23, 2025 07:35 ET (11:35 GMT)

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