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Trump publicly attacks the Federal Reserve more often than Erdogan attacked Turkey's central bank. However, Erdogan got the job done by firing its governor, rather than speaking out openly...
By verbally attacking Federal Reserve Governor Jerome Powell and demanding lower interest rates, Donald Trump is following the example of “populist authoritarians,” including Hungary’s Viktor Orban and Turkey’s Recep Tayyip Erdogan, The New Yorker wrote.
Trump escalated his attacks by calling Powell a "stubborn idiot" for not cutting interest rates.
In 2018, Erdogan issued a presidential decree giving him the power to dismiss the governor of Turkey’s central bank, The New Yorker recalls. Between 2019 and 2024, he forced out four governors who opposed his demands for low interest rates despite rising inflation.
Erdogan's determination to keep interest rates low resulted in capital flight from Turkey, a decline in the value of the local currency, higher inflation, and a prolonged period of slow economic growth that some economists have characterized as a depression.
The US economy, of course, is much stronger than the Turkish economy was in 2018, while the dollar is a much more sought-after currency than the Turkish lira has ever been, The New Yorker also noted.
However, Selva Demiralp, a Turkish economics professor who worked at the Federal Reserve between 2000 and 2005, told the magazine that she sees parallels between Trump and Erdogan, who eventually stepped down in 2023 and brought more “orthodox” central bankers on board.
In 2023, Demiralp published an academic paper titled “Do financial markets respond to populist rhetoric?”
Along with two colleagues, Demiralp argued that the market's reaction to political comments from leaders criticizing their central banks and arguing for lower interest rates increases over time.
“Withdraw”
What really matters are strong institutions, according to Demiralp. In May, the conservative majority on the U.S. Supreme Court said Trump needs a strong reason to fire Powell, essentially telling him to "retire," according to The New Yorker.
Cheeky Donald
In 1951, the US government gave the Federal Reserve autonomy to set interest rates. Richard Nixon, who was in the White House between 1969 and 1974, is known to have privately pushed the authority to lower rates.
But Trump makes an exception in this regard, because he is very honest and shameless, he does not hide anything. Nothing happens behind closed doors. Everything is broadcast live on TV. It is a great reality show.
The moment of truth, May 2026?
Powell was actually nominated by Trump in 2018. However, the president quickly realized that Powell was not the man to say "yes" to everything.
In May 2022, Powell was given a second term by Joe Biden. His term expires in May 2026. His departure could bring a moment of truth.
Trump has hinted that he will replace Powell with the man he wants. So the risks of such an appointment, as things stand, will be realized in May 2026. However, the market reaction will start a few months earlier, especially when Trump announces his intended puppet.
Best scenario
In the best-case scenario, Powell will end the ongoing cycle of interest rate cuts (started in December, interrupted due to uncertainties created by Trumpnomics, and expected to be revived on September 17, all things being equal) and Trump will have no reason to cut interest rates further.
If this is not the path we are following, we may face some market turbulence and shocks, as well as higher inflation.
Attack versus action
Demiralp's article notes how Trump publicly attacks the Federal Reserve more often than Erdogan attacked Turkey's central bank. However, Erdogan got the job done by firing its governor, rather than speaking out.
As a result, markets have, so far, taken Trump less seriously than they have taken Erdogan. Turkey experienced a crisis.
Decision by the committee
The New Yorker is not the only one comparing the situation in the US to that in Turkey.
On July 13, Reuters reported that analysts assume that Trump's pick for Federal Reserve chief would do the same thing he did by trying to cut interest rates aggressively, although it is doubtful whether the rest of the rate-setting committee would support such a move.
The cut could lower short-term market interest rates, but long-term yields are likely to rise, with investors seeking compensation for the risk of faster inflation, as happened in Turkey, the news service noted.
In April, Paul Krugman, the winner of the 2008 Nobel Prize in Economic Sciences, wrote on his blog that the US risks a dark descent into hyperinflation of the kind experienced by Turkey because of Trump's insistence on lowering interest rates.
Since last November, when Trump won his second term in the White House, he was warned he “will be inflationary.” / Adapted from Intellinews /
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