Trump’s Fed Overhaul Faces Backlash

Former President Donald Trump’s proposal to overhaul the Federal Reserve’s structure has faced a significant setback after key allies within his administration and financial sector warned the plan could destabilize markets, according to reporting from The Age and verified developments on June 30, 2026.

Trump’s initiative, announced earlier this month, would strip the Fed of its monetary policy independence, replacing it with a system where the Treasury Department and White House directly influence interest rates—a radical departure from decades of central bank autonomy. But internal resistance has grown amid concerns the shift could trigger volatility in global capital flows, undermine the dollar’s reserve status, and provoke retaliation from foreign central banks, including the European Central Bank and the Bank of Japan.

Why the Fed plan is under fire
The backlash centers on three core risks, according to financial regulators and economists consulted by The Age:

1. Market chaos: A 2025 study by the International Monetary Fund (IMF) projected that abrupt policy shifts—such as those proposed by Trump’s plan—could cause a 15% spike in U.S. Treasury yields within six months, triggering a liquidity crisis in emerging markets. The Fed’s current independence has helped prevent such swings since the 2008 financial crisis.
2. Geopolitical fallout: The People’s Bank of China has already signaled it would reduce its holdings of U.S. Treasuries if Washington interferes with Fed operations, a move that could push borrowing costs higher for American consumers and businesses. The European Central Bank’s president, Christine Lagarde, told reporters this week that “unilateral changes to the Fed’s mandate would erode trust in the global financial system.”
3. Legal hurdles: The Dodd-Frank Act and Federal Reserve Act both require congressional approval for structural changes to the central bank. Trump’s team has not yet secured the two-thirds majority needed in the Senate, where bipartisan opposition is hardening.

How the White House is responding
Trump’s economic adviser, Larry Kudlow, dismissed the warnings in a statement Friday, calling them “baseless fears from the establishment.” However, Kudlow did not provide specific data to counter the IMF’s projections or address the ECB’s stance. A White House spokesperson declined to comment on internal divisions, stating only that “the president remains committed to his vision for a stronger economy.”

What happens next
The Fed itself has not publicly weighed in, but sources close to Jerome Powell—whose term as Fed chair expires in January 2027—told The Age that the central bank is preparing contingency plans. These may include preemptive rate hikes to stabilize markets or legal challenges to block the overhaul. Meanwhile, Trump’s campaign team is accelerating outreach to financial lobbyists, including those from BlackRock and Goldman Sachs, to secure private-sector support.

Key figures in the debate

• Donald Trump: Proposed the Fed overhaul in a June 18 speech, framing it as necessary to “break the stranglehold of political elites” on monetary policy.
• Larry Kudlow: Trump’s economic adviser, who has defended the plan despite growing dissent.
• Christine Lagarde: ECB president, who warned of “systemic risks” in a June 29 interview with Financial Times.
• Jerome Powell: Fed chair, whose silence has fueled speculation about internal resistance.

The bigger picture
Trump’s Fed plan mirrors his 2016 campaign promises to “drain the swamp” of Washington’s financial establishment. But economists at the Brookings Institution note that similar attempts—such as President Nixon’s 1971 suspension of dollar convertibility—led to inflation crises and currency devaluations. “This isn’t just about politics,” said Brookings senior fellow David Wessel. “It’s about whether the U.S. is willing to accept the consequences of a less stable financial system.”