US President Donald Trump tests America's resilience

How long will this last?Donald Trump (79) is in the process of ruining the US Federal Reserve. This is no trivial matter. The Federal Reserve is the heart of America's financial system—and thus of vital global importance. Financial experts are warning Trump to keep his hands off the Fed. Recently, the heads of the largest bank in the US , JP Morgan, and the investment firm Pimco issued warnings.

This doesn't stop Trump and his people from personally undertaking an inspection tour: At the Fed building construction site, Federal Reserve Chairman Jerome Powell (72) was supposed to answer in front of cameras these days for the fact that construction costs are over budget . A scene from the repertoire of absurd political theater.

In classic autocratic fashion, Trump is cornering an independent institution. Because the Fed is well protected by law and the Constitution, he is now trying to oust Powell from the central bank for alleged negligent conduct.

On Wednesday, the Fed's Board of Governors will decide on the future course. The key interest rate is at 4.3 percent. Powell and his colleagues will likely leave it at that level. Afterward, the Fed Chairman will likely present his arguments in his usual cool, technocratic tone: numbers, data, facts.

Trump, on the other hand, will rant and rave. He absolutely wants lower interest rates. He has repeatedly called for an immediate reduction to one percent – it would be an unprecedented driver of inflation.

But it's far from just a matter of a few percentage points more or less in interest rates. It's about the institution of the Fed itself, its credibility and integrity—and the signals Washington sends to the world. If the Fed falls, other central banks risk being swept up in the populist vortex, possibly even the European Central Bank (ECB), which is considered the world's most formally independent monetary authority.

The independence of modern central banks is not an end in itself. Experience with politicized monetary authorities has simply been too negative, as they tend to produce higher inflation rates and greater economic and exchange rate fluctuations. All of this throws a wrench into the economic system and slows progress. It also helps if financial supervision is also removed from the reach of politicians. Corruption, fraud, and the resulting instability then have less of a chance.

Of course, even independent central banks make serious mistakes. For example, they failed to view the excessive liquidity supply in the 2000s or the emerging inflation dynamics following the coronavirus lockdowns in autumn 2021 as major problems, which in the first case led to the financial crisis of 2008/09 and the second to the inflation shock of 2022/23. But they are capable of correcting themselves. And they are doing so, sometimes with impressive consistency.

Monetary policy strategies can be argued about. It's even necessary. When economists and journalists, NGOs, and financial analysts challenge central banks on their substantive issues, they point to overlooked risks, problems, or distributional imbalances. An environment of constructive criticism makes central banks better.

However, it is something completely different when a US president, whose claim to power is already excessive, as the country's highest executive institution, tries to corner the Fed.

Trump has repeatedly publicly toyed with the idea of removing Powell from office early. His term in office runs until May of next year, but the pressure on him personally is growing, as evidenced by the new sideshow of construction costs.

It seems as if Trump's attacks are intended to normalize the scandalous to such an extent that the ultimate usurpation of power will ultimately be accepted with a shrug. All these attacks on the Fed's independence would therefore not be a whim of the president, but a calculated move. At some point, citizens and investors will be so confused by the constant back and forth that they will only register the ultimate hostile takeover of the Fed with a weary look.

By next spring at the latest, Trump will be able to install a central bank chief of his choosing. But why does he even want to call the shots at the Fed? Firstly, as a matter of principle – independent institutions are incompatible with autocratic rule. Secondly, because he hopes to continue financing high government deficits with rising debt with low interest rates. This is certainly illusory; as soon as inflation picks up and the system as a whole is destabilized, long-term capital market interest rates will rise, further restricting the government's room for maneuver. Until that happens, however, the game can continue to play out for a while.

So far, at least, the US economy has proven quite resilient. Despite attacks on the Fed, the endless tariff drama ( Friday marks the deadline Trump has set for other countries to sign "trade deals," after which US tariffs on imports from various countries could rise significantly), despite Elon Musk's (54) DOGE attack on the federal bureaucracy, despite attacks on press freedom, and other disturbing developments, America's economy appears to have weathered the first half of Trump 2.0 without major disruption.

But the statistics are coming in with a delay, and the Trump turmoil is likely to hold some surprises. At the same time, cracks are opening up in various places that could widen into rifts.

Some highlights:

• It would be surprising if itself All this uncertainty would not translate into weaker economic activity, especially lower investment. New US gross domestic product (GDP) figures are due out Wednesday : an initial estimate for the second quarter, which began with the tariff hammer on April 2nd.

• Inflation has recently risen slightly again, to 2.7 percent – well above the two percent target targeted by the Fed. Food prices, in particular, have become more expensive . The restrictive immigration and rigorous deportation policies are likely to further increase the cost of food and household services.

• Despite the attacks on the Fed, there is currently little sign of panic in the financial markets. Rather, there is a tense wait-and-see attitude. Long-term interest rates on U.S. Treasury bonds have recently fallen slightly. At the end of the week, the yield on 30-year U.S. Treasury bonds was at 5 percent, and mortgage rates were at 6.7 percent .

• The US labor market has proven robust so far. The economy performed better last year, but the feared recession hasn't materialized. New July figures will be released on Friday .

• Nevertheless, citizens are feeling uncertain. Consumer spending was extremely weak in April and May .

• America's foreign trade deficit increased dramatically since Trump took office on January 20—by 44 percent— to $450 billion in the first quarter . This is primarily a result of a sharp increase in imports: US companies built up their inventories before the announced tariffs were actually imposed. What has happened since April will only become clear in detail at the end of September, when new figures are available.

• The uncertainty among international investors is undoubtedly evident in the financial markets. America's heavily deficit international asset position has recently declined significantly (by two trillion dollars) as investors withdrew their funds. Investments by foreign companies in the United States have also declined . New figures will not be released until September 29.

• The US dollar has lost value since Trump took office, despite comparatively high US interest rates. The aggressiveness toward the Fed is certainly having a deterrent effect. However, the "effective" trade-weighted exchange rate against all major currencies remains within normal ranges . The dollar's loss of importance as an international reserve currency can be seen in the gold purchases by central banks and the corresponding price records.

America's economy and its financial markets are so large that they possess immense resilience for that reason alone. For companies and investors from all over the world, there are simply no significant alternatives to the US as a sales, procurement, and capital market—at least not in the short term. This is precisely why they have withstood Trump's fury—so far, at least.

Monday

Reporting season I – business figures from Heineken, Nordex, EssilorLuxottica, Whirlpool.

Tuesday reporting season II – business figures from Drägerwerk, Teamviewer, Stellantis , Orange, Philips, Kering, Air Liquide, L' Oréal, Endesa, Ferrovial, Barclays, AstraZeneca , Spotify, UPS, Boeing , Visa, PayPal , Merck & Co, Procter & Gamble, Booking.

Wednesday Washington/ Luxembourg – Level determination – The US government and the EU statistics office Eurostat publish flash estimates for the gross domestic product of the US, the Eurozone and the EU in the 2nd quarter.

Berlin – Planning approval – The Federal Cabinet intends to approve the draft budget for 2026.

Reporting season III – business figures from Mercedes, BASF ,Siemens Healthineers , Adidas , Symrise, Porsche , Kion, Airbus , Santander, Prada, ACS, Caixa, Leonardo, IntesaSanpaolo, Telefonica, Danone, Hermes, Rio Tinto, HSBC, GlaxoSmithKline, BAE Systems, UBS, Glencore, Microsoft , Meta , Kraft Heinz, GE Healthcare, Hershey, Qualcomm, Ebay , Ford.

Thursday Nuremberg – It's crumbling – The Federal Employment Agency publishes its labor market report for July 2025. Employment dynamics in Germany have been declining for some time, with job cuts in industry in particular accelerating.

Wiesbaden – Reassured – The Federal Statistical Office has presented its first estimate for the inflation rate in July. The most recent figures were 2 percent.

Reporting season IV – business figures from BMW , Lufthansa , Heidelberg Materials, Covestro, Heidelberger Druck, Aixtron, Knorr Bremse, Hensoldt, ZF, Puma , ProSiebenSat1, Unilever, ING, Euronext, Vivendi, Crédit Agricole, Société Générale, Sanofi, Renault , Anheuser-Busch, Enel, ArcelorMittal, BBVA, Pirelli, Air France-KLM, Accor, Schneider Electric, Saint-Gobain, Ferrari, Holcim, Anglo American, Standard Chartered, Rolls-Royce, Shell, BAT, Apple , Amazon , Biogen, Universal, Bristol Myers Squibb.

Friday Washington – Tariff hammer revisited – US President Trump has threatened to increase tariffs from this point on for all countries that have not concluded a tariff deal with him by then.

Luxembourg – Europe’s prices – The EU statistics agency Eurostat publishes a first estimate for the inflation rate in July.

Reporting season V – business figures from Daimler Truck , Evonik, Axa, Moderna , Exxon Mobil, Colgate-Palmolive, Chevron.