The succession struggle for the position of Federal Reserve chairman is escalating and threatening the dollar

After months of searching for a successor to Chairman Jerome Powell, the race for the job has now been narrowed down to four main candidates: Ryder; the head of the White House’s National Economic Council, Kevin Hassett; Fed board member Christopher Waller; and former Fed board member Kevin Warsh. Until recently, Hassett had been named the front-runner in the eyes of President Donald Trump, until the latter indicated on Friday that he preferred Hassett will remain in his current position.

At the same time, the sensitivity around the appointment is growing in Congress. Senior senators, including Republican Senator Tom Tillis, a member of the Banking Committee, made it clear that candidates proposed by Trump are expected to undergo particularly strict scrutiny. This, after the Ministry of Justice summoned Powell last week for questioning on suspicion of misleading Congress regarding the costs of the Fed headquarters renovation project in Washington. Tillis also made it clear that he would oppose any appointment until the allegations are clarified. This is a weighty threat, given the fact that the Senate Banking Committee is the first and critical stop on the way to the confirmation of any candidate for office.

Against this background, Ryder, Blackrock’s global bond chief investment officer, is seen by some sources as a candidate who is easier to pass his approval in the Senate, and it is assumed that the markets will also respond positively to him.

However, it seems that the sheer number of speculations surrounding the identity of the next governor shows less about the direction in which the decision is headed, and more about Trump’s volatile and unpredictable nature. “No one knows who President Trump will pick for the Fed, except for President Trump himself. As the president has said recently, he will announce his final decision soon,” White House spokeswoman Karin Levitt said Saturday.

Relationship crisis

The chairman’s chair will become vacant when Powell’s term expires this May. President Trump has a history of attacking the central bank regarding interest rate policy, but his relationship with Powell since his second entry into the White House in January 2025 has seen steep declines. He even flirted for the first time with the possibility of removing Powell – but was content only with not extending his term.

The height of tensions between the two was recorded when the investigation began. In an interview with the NBC network, Trump denied that he knew about the existence of the investigation and said: “I don’t know anything about it, but he (Powell) is certainly not very good at the Federal Reserve, and he is also not very good at building buildings.”

Powell himself explicitly linked the investigation to the question of the independence of the central bank and its ability to set interest rates without political interference. “The Fed sets interest rates based on our best assessment of what will serve the public, rather than following the preferences of President Donald Trump,” Powell said in a video statement posted on the X social network.

“I have deep respect for the rule of law and accountability in our democracy. No one, certainly not the chairman of the Federal Reserve, is above the law, but this unprecedented step must be seen in the broader context of the administration’s threats and ongoing pressure,” Powell added.

At the end of 2025, the Federal Reserve reduced interest rates three times in a row, but since then its senior officials have signaled that they are in no rush to continue the trend, until clearer data on inflation and the labor market is gathered. It is estimated that at the next meeting, which will be held on January 27-28, the interest rate will remain unchanged.

The cost of living in the center

Trump sees Powell as an obstacle that stands between him and the realization of his election promises to the middle class and working public. The cost of living has quickly become the central political issue of this year’s midterm elections. The polls consistently show that housing prices, food, health services and the cost of credit – today rise in the order of voters’ priorities even over issues such as immigration and foreign policy. Even among Republican strategists there are those who admit in closed conversations that if prices remain high and interest rates continue to oppress, the party may pay a heavy price, especially in the suburbs and among young voters.

Democrats are already framing the election as a referendum on Republicans’ ability to provide economic relief. And there are those who warn that public frustration with daily expenses could lead to a loss of seats in the House of Representatives – and make it difficult for the ruling party to maintain its already small majority in the Senate.

Blackrock’s Ryder called the Fed’s independence “critical,” but also echoed Treasury Secretary Scott Besant’s words when he said the central bank could be more “innovative.”

The degree of dependence on the dollar

Economists repeatedly warn that the possible damage to the independence of the Federal Reserve does not translate into a sharp and immediate weakening of the dollar, but into something more subtle and dangerous: an erosion of its status as a safe asset.

The mere possibility of political intervention in the interest rate policy may cause countries, central banks and international corporations to re-examine their degree of dependence on the dollar, and change the existing economic order as we have known it in recent decades.

As of today, the American currency still manages to maintain a clear superiority: it controls the global payment systems, the financing of world trade and the debt markets, and as of today, there is no other currency that is able to fulfill all of its functions at the same time. But that may change.

China is putting a lot of effort into turning the yuan into a currency with a global presence. It is expanding the financial payments network that relies on the yuan as an alternative to the Swift system led by the US. At the same time, it is increasing the scope of loans to developing countries and encouraging international companies to issue bonds denominated in yuan. These steps are not dramatic in themselves, but they lay the groundwork for a growing market for tradable assets in the Chinese currency. According to official figures, roughly half of China’s international transactions are now denominated in its currency, compared to almost zero 15 years ago.

Even before taking office, Trump warned against China’s attempts to expand the use of the yuan, and later even threatened to impose tariffs on the countries of the BRICS bloc, which includes China, if they promote an alternative to the dollar. As trust in American institutions erodes, the search for alternatives, even if only partial, may gain momentum.