Splinter: Trump Declares War on the Economy

I don’t want to trivialize the word war here, what with the Trump regime recently invading a sovereign country and kidnapping its leader while executing mothers on Minneapolis streets, but I do want to use it as a way to convey the gravity of the situation between Trump and the dwindling independence of the profoundly influential Federal Reserve. Aside from its establishment in 1913 as a bastion of economic forecasting and policymaking independent of political whims, the primary job of the Fed Chair is not to follow the Fed’s Congressional mandate, nor to manage balance sheets and other liquidity measures, but to be the most boring human alive. The market hangs on the Fed Chair’s every word at every FOMC meeting, and past statements are mapped on to present ones to see what changed so investors can try to uncover clues as to how perhaps the most influential singular entity to the global economy looks at the future. In a normal world, Jerome Powell should be up here talking about labor market minutiae while saying anodyne things like “we are making continued progress toward our dual mandate objectives,” not releasing proof of life videos to keep the bond market from going haywire.

Unfortunately we do not live in a normal world, we live in one where Trump’s shambolic Department of Justice announced on Sunday that they are sending indictments to the Fed over supposed budget overruns on renovations they have been making, but for anyone who has been following this story since Trump took up this effort to name himself Fed Chair, it’s crystal clear that Trump is indicting the Fed because Jerome Powell won’t drop the Fed Funds Rate to 1% or less (it’s currently at about 3.64%).

So instead of doing his job of being the most boring man in the world (which he does well, I might add), in response to the indictments sent to the Fed, Jerome Powell issued one of the most extraordinary statements I have ever heard in my entire life, outright saying that these indictments are an attempt to force him to drop interest rates.

Three other former Fed Chairs did not mince words in ringing all the economic alarm bells, as Ben Bernanke, Janet Yellen and Alan Greenspan issued a joint statement the following day.

The Federal Reserve’s independence and the public’s perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates. The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence. This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly. It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.

It’s very difficult to overstate how shocking and extraordinary this kind of direct speak from the most boring people alive is. Economic concepts can be opaque, but that’s where (accurate) charts are helpful, so to get an idea of the point these four Fed Chairs are making, just look at what happened to Turkey when they put a regime loyalist in charge of their monetary policy.

What can history teach us about what happens when a populist strongman with an idiosyncratic taste for low interest rates undermines central bank independence?

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— Justin Wolfers (@justinwolfers.bsky.social) January 11, 2026 at 6:44 PM

It’s not the kind of hyperbole that’s likely to go viral in our unceasing age of escalation, but these words coming from these people are a ten-alarm fire. This is akin to a group of engineers who built a building that is now ablaze, all warning you that it is likely to explode, while the president orders one of them arrested because he’s refusing to pour gasoline on the fire. You may not care about interest rates, but they care about you. They are the price of money and they influence every square inch of the economy. In Trump’s insatiable bid to claim dictatorial sovereignty over every nanometer of the planet, the price of money has now taken center stage alongside Venezuela, Greenland and Minneapolis in his deluded crosshairs. This is all the kind of stuff that someone who is genuinely not all there would do, and everyone in the mainstream press refusing to cover the Biden-sized elephant in the room is complicit in president sundown’s crimes at this point.

The problem that dumbfuck Trump and other crypto-brained noobs like him have is that the Fed does not set Treasury rates, the price of risk-free money that underpins the entire world of finance. The Fed sets the Fed Funds Rate, which affects the rates they lend to banks and other big entities who hold Treasuries, which in turn influences the bond market. Generally, the Fed Funds Rate does move debt markets–but with an important caveat–only when debt markets trust that the Fed is pursuing a goal in line with its mandate and its longstanding tradition of independence. If debt markets do not think that those setting monetary policy are doing it because of sober economic reasons, well, then you’re Turkey.

That’s where we’re headed, per four Fed Chairs.

Trust is what underpins finance more than anything. Interest rates are effectively a numerical representation of trust and the degree to which bond purchasers believe the people they’re lending money to will pay them back. In this age of Zero Interest Rate Policy (ZIRP) that broke the way we look at the economy beyond being a vehicle for financialization, a lot of people have come to believe a really naïve thought that they share with the President of the United States of America. The bond market is not the Fed Funds Rate, and you can’t just order it around at the barrel of the gun the way the rest of Trump’s regime operates.

Bond market investors are the ones carrying the bazookas in this realm, and all they have to do to utilize it is wake up one day and decide to call themselves a vigilante and smash the sell button. If the biggest investors in the world all decide that America’s debt is not as risk-free as it thought, and in fact deserves a much higher risk premium because we’re the kind of country to elect a reality game show host who can overthrow the Constitution in less than a year, Trump can drop the Fed Funds Rate to 0% and he won’t reduce that premium added on top of it, to say nothing of people changing their views on long-term American debt. You think getting a mortgage is tough now? Just wait until the 30-year spikes way above the TACO Trump number of 5% because everyone can see that new Fed Chair Kevin Hassett never talks when Trump is drinking water and they dump all their duration risk.

Not exactly a comforting response to Trump’s assault on the Fed from bonds today. President ZIRP is not likely gonna get what he wants out of this.

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— Jacob Weindling (@jakeweindling.bsky.social) January 12, 2026 at 8:03 AM

The subtext of Powell’s continued resistance to Trump’s pressure to drop interest rates farther and faster than any Fed Chair in modern history is that Powell clearly does not think the economy is ready to absorb low interest rates. Inflation is still hovering around 3%, and the Fed’s target is 2%. Once it’s down at that level for a period of time the Fed deems long enough is when Powell has said they will feel comfortable easing monetary policy the way Trump wants to, but not to the degree Trump desires. What Trump wants is unprecedented, we didn’t even drop rates under 1% this fast during the 2008 crash. The bond market’s initial reaction to push interest rates higher also backs this inflationary fear up. Two Republican Senators temporarily finding one atom on their vaporized spines and saying they won’t confirm a Trump toady to Chair the Fed adds further evidence to the notion that we are on the precipice of some very very bad economic developments should Trump get what he wants.

The 1970s taught us that lowering interest rates to try to create an economic boost before inflation has fully abated can bring inflation roaring back with a vengeance, forcing you to raise interest rates even higher than you had them before. That’s the short story of why many of our parents are traumatized by Paul Volcker, and why they think we’re all a bunch of babies for complaining about single digit mortgage rates. Since the Fed pivoted in March 2022, they have been very explicit that they want to be patient and not repeat the mistakes of the 1970s, and Trump has insisted that those mistakes were very good actually, and in fact, we should make all of them all at once.

There may come a day, perhaps soon, where the Fed Funds Rate is at 1%, an attempt by Donald Trump to bend the entire global economy to his will, and the bond market responds with rates above 3% and 4%, communicating either imagined or justified fears over inflation coming back (which the Fed has said it has seen in the data related to Trump’s tariffs, the highest tariff rate Americans have paid since 1934). This is a recipe for chaos. No one can tell you exactly what comes next, because Trump and the people who finance America’s debt will functionally be existing in two completely different realities. Trump is attempting to destroy the financial world based on logic and reason, and replace it with one driven by his id.

What we do know however, is that trust in the United States is rapidly decreasing around the world, and there is a genuine risk premium on our economy that foreign investors placed on us last year, leading to a generational one-year wipeout for the dollar all while boring old gold went parabolic and raced to all-time highs like some kind of shitcoin. The independence of the Fed is a keystone of our modern world, and Trump is doing everything he can to unmoor it and send gold shooting ever higher while the dollar continues to slide. That Powell is coming right out to say that we are about to be a financial banana republic is extremely alarming, as this act of brave defiance may wind up being the last independent gasp of the United States Federal Reserve, upending the entire theoretical basis the global economy has operated on for over a century. What could possibly go wrong?