Karishma Vanjani
The weakening dollar could turn out to be a problem for both Donald Trump and the Federal Reserve, even though the president told reporters in Iowa that the currency is "doing great."
Measured against a basket of six major currencies, the dollar is down 2.1% this month after a fall of over 9% last year. A further slide in its value threatens to create a high-inflation future, a problem for both the Republican Party and whoever wins the job as the next Fed chair.
Trump said Thursday he will reveal his choice of a nominee next week.
A weak dollar has always been part of the Trump agenda. "We have a big currency problem," Trump said in a 2024 interview with Bloomberg. "Nobody wants to buy our products because they're too expensive," he added. After he began his second term in 2025, he said, "I will never say I like a low currency...but you make a hell of a lot more money with a weaker dollar."
The logic goes that a weak dollar allows for faster economic growth and smaller trade deficits. Manufacturers such as Caterpillar that make more than half their sales overseas get more dollars when converting other currencies into the greenback. Companies like Nvidia and Micron Technology are in the same position.
But here's the challenge: If the dollar slides too much, then the U.S. runs the risk of effectively importing inflation. Everything the nation buys abroad, from electronics to vehicles, becomes more expensive. Americans imported $348.9 billion worth of goods in November, $56.8 billion more than the value of the goods sold abroad.
Tariffs create an incentive to produce goods domestically, but no one is suggesting that import totals will be anything less than enormous.
"Trump's disregard for the value of the currency could come back to bite him, blowing up his economic agenda and causing the Republicans to lose their majority in the House," wrote Ned Davis Research's chief macro strategist Joe Kalish.
Affordability is a vulnerability for the Republican party. The most recent polls show voters already have a less favorable view of the GOP as the midterm elections in November draw closer. At stake is control of both houses of Congress.
On Wednesday, Powell told reporters the Fed doesn't talk about the dollar, and that it is the Treasury Department "that has the job of oversight" over the currency. Ironically, though, it might be moves by the bank that could help defend the dollar if inflation becomes a more serious problem.
The December consumer price index showed inflation of 2.7%, well above the Fed's 2% target. Additional inflation, triggered by a continued slide in the dollar, could prevent the bank from cutting rates, as Trump wants it to, or even lead it to increase them. Higher interest rates increase the value of the dollar because foreign investors have to have the currency to buy assets such as Treasury debt.
"The new Fed Chair could be walking into a trap," Kalish wrote.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
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(END) Dow Jones Newswires
January 29, 2026 14:38 ET (19:38 GMT)
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