The Potential Consequences of the Dollar Depreciation for Trump and Monetary Policy

A continuous weakening of the US dollar could have significant consequences for the Trump administration and the political landscape of the United States. According to analyses by Jin10, a sharp decline in the dollar’s value risks “importing” inflation into the US— a phenomenon that threatens economic stability.

Imported Inflation as an Economic Risk

If the dollar continues to depreciate, foreign goods will automatically become more expensive on the American market. This not only leads to higher consumer prices but could also jeopardize Trump’s economic reform plans. Joe Kalish, Chief Macro Strategist at the renowned research firm Ned Davis Research, warns of the political risks of this scenario: a potentially misguided currency policy could put heavy pressure on the Republican majority in the House of Representatives and ultimately lead to election results that harm the party.

The Currency Regulation Dilemma

The Federal Reserve recently signaled through its chairman Jerome Powell that it does not directly intervene in currency matters. Officially, responsibility for dollar regulation lies with the US Department of the Treasury. However, this institutional separation creates a paradoxical problem: if inflation truly accelerates due to dollar depreciation, it could be precisely the monetary policy measures of the Federal Reserve that become the most important defense mechanism for the dollar.

The Federal Reserve’s Interest Rate Dilemma

The core issue here is: ongoing dollar depreciation, which could potentially lead to further inflation, might put the Fed in a bind. It would then be unable to lower interest rates as Trump desires—in fact, it might be forced to raise rates even further to stabilize the currency and avoid inflation spirals. This would directly counter Trump’s economic agenda and highlights the potential conflicts between short-term political wishes and macroeconomic necessity.