jordan pulse -

By: Prof. Khaled Wasif Al-Wazani
Professor of Economics & Public Policy
Mohammed Bin Rashid School of Government

At the conclusion of the U.S. Federal Reserve’s latest meeting on July 29–30, the Fed decided to keep interest rates unchanged at 4.25%–4.50%. The decision was justified by a “high degree of uncertainty” in the economy, with a need to monitor incoming data before making policy adjustments.

More recently, at the Jackson Hole Symposium (August 22, 2025), Chair Powell hinted at a gradual rate cut possibly starting in September, citing a slowdown in the labor market and rising inflationary risks linked to tariffs imposed since the Trump era. These remarks boosted optimism in markets. However, Powell stressed that timing would depend on economic data.

Here lies the paradox: the same Fed that previously highlighted “high uncertainty” now admits risks of inflation and slowing job creation—factors that would normally justify holding or even raising rates, not cutting them. This suggests that the Fed, under Powell, may be tactically yielding to political pressure. History tells us that such interference is one of the earliest signs of great economic powers’ decline.

When political ambitions mix with monetary policy—disrupting money supply, velocity, and stability—the eventual outcome is erosion of currency credibility, loss of investor trust, and weakening economic control. Even if the damage is not immediate, the long-term effects are inescapable.

Central bank independence is therefore not an “academic luxury” but a fundamental pillar of economic stability. Independent institutions that base decisions on economic fundamentals—rather than electoral cycles or authoritarian impulses—tend to achieve lower inflation and greater trust among investors and citizens. Political intrusion turns these institutions into arenas of financial sociology, historically leading to unjustified inflation, declining growth, higher unemployment, weakened purchasing power, and reduced export competitiveness due to cost-push inflation and rising borrowing costs.

While many argue that Powell has not surrendered to Trump-era political pressures, his signals of possible rate cuts—even if framed as “economically driven”—raise concerns about the future dominance of the U.S. dollar, which still accounts for about 60% of global reserves and two-thirds of international trade settlements.

Meanwhile, economic blocs like BRICS are advancing toward alternatives, whether through national currency settlements or digital currencies backed by strong economies—China today, Russia tomorrow.

For the 66 countries pegging their currencies to the U.S. dollar, this is a clear early warning. Over the next decade, they should develop new reserve and settlement systems—diversifying into precious metals, digital currencies, and upcoming global financial instruments.

There is no urgent threat in the short or even medium term. Yet, prudence suggests preparing for systemic change before being forced to manage its consequences later.

khwazani@gmail.com
Prof. Khaled Wasif Al-Wazani
Professor of Economics & Public Policy
Mohammed Bin Rashid School of Government
Sent for publication on 30/08/2025