In verbally attacking Fed governor Jerome Powell and demanding lower interest rates, Donald Trump is following the playbook of other “populist authoritarians” including Hungary’s Viktor Orban and Turkey’s Recep Tayyip Erdogan, wrote The New Yorker on July 28.

Trump stepped up his attacks on July 31, calling Powell a “stubborn MORON” for not cutting the policy rate.

In 2018, Erdogan issued a presidential decree giving him the power to dismiss the governor of the Turkish central bank, recalled The New Yorker. Between 2019 and 2024, he forced out four governors who chafed at his demands for low interest rates regardless of soaring inflation.

Parallels between Erdogan and Trump may shed light on road ahead

Erdogan’s determination to have low rates resulted in capital fleeing Turkey, a collapse in the value of the local currency, higher inflation and an extended period of slow economic growth that some economists have characterised as a depression.

The US economy, of course, is a great deal stronger than the Turkish economy was in 2018 , while the dollar is a far more sought-after currency than the Turkish lira ever was, The New Yorker also noted.

However, Selva Demiralp, a Turkish professor of economics, who worked at the Fed between 2000 and 2005, told the magazine that she sees parallels between Trump and Erdogan, who eventually relented in 2023 and brought on board more ‘orthodox’ central bankers.

In 2023, Demiralp released an academic paper entitled “Do Financial Markets Respond to Populist Rhetoric?”

Together with two colleagues, Demiralp argued that the market response to political commentaries by leaders who criticise their central banks and argue for lower interest rates increases over time.

“Back off”

What really matters is strong institutions, according to Demiralp.

In May, the conservative majority on the US Supreme Court said that Trump needs good cause to fire Powell, essentially telling him to “back off”, according to The New Yorker.

Donald the brazen

In 1951, the US government provided the Fed with autonomy in setting policy rates. It is known that Richard Nixon, who occupied the White House between 1969 and 1974, privately pushed the authority to lower rates.

Trump is also an outlier in this manner as he is too frank and brazen, he hides nothing. Nothing happens behind closed doors. Everything is live on TV. It’s a great reality show.

Moment of truth, May 2026?

Powell was actually appointed by Trump in 2018. However, the president was quick to realise that Powell was not the yes man he was looking for. With Trump currently stuck with him, the heavy insults are flowing thick and fast.

In May 2022, Powell was granted a second term by Joe Biden. His term is set to expire in May 2026. His exit could bring a moment of truth.

Trump has indicated that he will replace Powell with the yes man he desires. So, the risks of such an appointment, as things stand, will be realised in May 2026. The market reaction, however, will begin a few months earlier, particularly at the point when Trump announces his intended puppet.

Best-case scenario

In the best-case scenario, Powell will conclude the ongoing rate-cutting cycle (launched in December, paused due to the uncertainties created by Trumpnomics and due to be revived on September 17, all things being equal) and Trump will have no cause to cut the rates further.

If that is not the road we are in for, some market turbulence and shocks as well as higher inflation could be in store.

Talk versus action

Demiralp’s paper observes how Trump publicly attacks the Fed more frequently than Erdogan went after Turkey’s central bank. However, Erdogan got the job done by firing his governor, rather than talking the talk.

As a result, the markets, so far, have taken Trump less seriously than they took Erdogan. Turkey experienced a meltdown.

Decision by committee

The New Yorker is not alone in likening the situation in the US to Turkey. On July 13, Reuters reported that analysts assume Trump’s pick for Fed chief would do his bidding by trying to cut interest rates aggressively, though whether the rest of the rate-setting committee would back the course of action is in doubt.

The cutting could push short-term market rates lower, but longer-term yields would likely rise with investors demanding compensation for the risk of faster inflation, much as happened in Turkey, the news service noted.

In April, Paul Krugman, the 2008 winner of the Nobel economic sciences prize, wrote in his blog that the US risks a dark descent into hyperinflation of the type experienced by Turkey due to Trump’s insistence on bringing in lower policy rates.

Since last November, when Trump won his second term in the White House, bne IntelliNews has been cautioning that Trump will “definitely be inflationary”.

“He will push the Fed to cut rates more extensively and pump in more liquidity,” this publication noted on November 10.