The threat to the global economy from Trump’s war on the Fed is becoming starkly visible, as a combination of modest growth forecasts, rising inflation pressures and an unprecedented assault on central‑bank independence converge to raise the spectre of higher borrowing costs worldwide.

Forecasts from Aberdeen Investments place U.S. real GDP growth at 2.0 % in 2025 and 2.2 % in 2026. Those figures sit below the pre‑Trump average of roughly 2.5 % recorded in 2018‑2019 and are a long way from the 5.7 % post‑pandemic surge of 2021. Even the modest rebound follows a slowdown to 1.6 % annualised in the first quarter of 2024, suggesting that the economy is unlikely to regain the dynamism of the late‑2010s without a decisive policy shift.

The modest uplift in the 2025‑2026 outlook is attributed to “fiscal loosening and deregulation” that, according to Aberdeen, more than offsets the drag from tariffs. Yet the same analysis flags “higher tariffs, strong demand and lower labour supply” as drivers of core PCE inflation around 2.5 %, indicating that any growth gain is being eroded by price pressures. CEPR adds that President Trump’s “substantial criticism of Fed policy” and his power to appoint new Board members could undermine the Fed’s independence, leading to “higher inflation and worse economic performance” over time.

The political dimension has moved from rhetoric to direct confrontation. On 12 January 2026, Fed Chair Jerome Powell released a video stating that a Justice Department grand‑jury subpoena – concerning a $2.5 billion headquarters‑renovation project – was a “pretext to pressure the Fed to set interest rates the way the President wants.” Former Treasury Secretary and ex‑Fed chair Janet Yellen, speaking on PBS NewsHour the same day, warned that Trump’s intimidation “threatens the stability of the global economy” and is “extremely chilling” for central‑bank independence. A joint letter signed on 13 January by former chairs Bernanke, Greenspan and Yellen, together with former Treasury secretaries, called the probe “unprecedented” and likened it to the coercive tactics seen in emerging‑market economies.

Market participants have echoed the officials’ concerns. JPMorgan Chase CEO Jamie Dimon told Bloomberg that attacks on the Fed could push up inflation expectations and raise borrowing costs, noting that a 10‑basis‑point rise in Treasury yields would lift mortgage rates by 0.25 %. Asset‑manager Peter Schiff and former PIMCO CIO Mohamed El‑Erian warned that the credibility hit could trigger a Treasury sell‑off and higher yields, while venture‑capitalist Reid Hoffman warned of a sharp rise in global cost of capital if independence is compromised. Even Republican senators are split: Sen. Kevin Cramer expressed confidence in Powell but called the investigation a distraction, whereas Sen. Thom Tillis pledged to oppose any Fed nominee perceived as compliant with the President’s agenda.

The cumulative effect of these dynamics is a heightened risk premium on U.S. sovereign debt, which could spill over into global markets. A leaked internal Fed memo warned that loss of confidence could spark a $200 billion volatility spike. With the Fed’s balance sheet already at $8 trillion, any erosion of credibility would force the central bank to defend its policy stance more aggressively, potentially tightening monetary conditions at a time when fiscal stimulus is already waning.

In sum, the Trump‑era pressure on the Federal Reserve is curbing the modest growth rebound projected for 2025‑2026, inflating inflation expectations and threatening the credibility that underpins global financial stability. If the political battle escalates, the United States may see higher borrowing costs, a weaker dollar and a contagion effect that could reverberate through emerging markets and developed economies alike.

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