A stooge in the US Fed could blow out inflation in Australia – but Trump is unlikely to get his way
The Reserve Bank of Australia could lose some control over its ability to set interest rates independently if Donald Trump is successful in his bid to take control of the US central bank, experts warn,Ten days after the US Department of Justice announced a criminal investigation into the Federal Reserve’s chair, Jerome Powell, the supreme court on Wednesday will hear arguments in a legal case that will determine whether the president has the power to fire Lisa Cook, a member of the Fed’s board of governors,National Australia Bank’s chief economist, Sally Auld, said if the court upholds Trump’s efforts to sack Cook then that could spell the beginning of the end of the central bank’s independence,The consequences of Washington DC wresting control over monetary policy could be severe, and ultimately lead to higher inflation,It would likely trigger a crisis in confidence in the American currency and financial assets, such as stocks and bonds, Auld said, with ramifications for other central banks.
In this worst case scenario, “the magnitude of the depreciation of the US dollar would be quite significant”,“If the Aussie dollar jumped 15%, that would make our currency expensive and that in itself might be enough to demand the RBA cut rates,Their hand could be forced,”So far, investors remain untroubled with the unprecedented attack on the Fed, and this calmness in financial markets “feels a little bit out of sync with the way people are sensing the world at the beginning of 2026”, Auld said,Sign up: AU Breaking News emailThere are 12 members of the Federal Open Market Committee who have a vote on rate decisions.
They include the seven members of the Washington DC-based board of governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 presidents of the regional reserve banks (who serve one-year terms on a rotating basis).The Fed’s next rate decision is due early on 29 January, Australian time, and will be the first made in the shadow of the looming threat of a Department of Justice criminal investigation into Powell.Even if Trump is unable to gain direct power over the central bank, as is likely, the political pressure and threats have already chipped away at the image of an independent institution.The chief economist at AMP, Shane Oliver, said a politically controlled Fed could keep rates lower for longer and “end up with an inflation blowout” that could smash the US dollar and drive Wall Street lower.Like Auld, Oliver believes the “upshot could mean lower rates” in Australia.
“A stronger Aussie dollar and lower interest rates; some Australians would think that’s not a bad outcome.But the risk would ultimately be more inflation.”Oliver said the prospect remained relatively distant.“To get to that point you’d need to have Trump gaining complete control over the Fed.If he gets control of four of the seven governors, then he gets some control over who sits as president.
That’s when the guardrails around the Fed weaken.”Successful or not, Oliver said Trump’s push to overturn decades of political support for central bank independence would set a precedent for other populists around the world.“For Australia, the problem is that this is the world’s most significant central bank.If the threats to independence are happening there, then it would happen here.”There is already a constituency on the left who would be happy to abandon the principle of central bank independence.
The Greens’ economic spokesperson, Nick McKim, in September last year demanded Jim Chalmers “show some courage” and exercise his legislative powers to “directly override” the RBA and force it to cut rates.Populist figures on the right, such as rising Liberal figures like Andrew Hastie and Senator Jacinta Nampijinpa Price, may choose to follow Trump’s lead, especially should the RBA raise interest rates this year.Unions have been deeply critical of the RBA for keeping rates too high at the expense of jobs, but still publicly back its independence.Oliver said “in some ways [Australia’s institutional settings] are already weaker than the Fed”.“To get a governor appointed in the US you have to go through a committee, whereas here you are just appointed by the Treasurer.
”Luci Ellis, Westpac’s chief economist and a former senior RBA official, said Australia should still be able to pursue an independent monetary policy even in a world where the American central bank has been suborned by political interests.“There’s no particular reason we have to follow what the Fed does,” Ellis said, pointing to recent evidence of how the two countries’ monetary policy paths have diverged.“It would be bad if the biggest and most powerful central bank lost some of its operational independence, but it would not in and of itself change how the RBA would need to behave.”Patrick Commins is Guardian Australia’s economics editor
The Guide #226: SPOILER ALERT! It’s never been easier to avoid having your favourite show ruined
Don’t be alarmed by the image above. I can assure you that this newsletter features no spoilers for the current season of The Traitors. We won’t be discussing the shocking departure of REDACTED, or the nefarious actions of EXPUNGED, or the fact that CENSORED is the wife/half-brother/hairdresser of NAME REMOVED. Relax, you are in a hermetically sealed Traitors safe space here.Indeed, what has gradually dawned on me while watching this latest series is how relatively straightforward avoiding spoilers has been
From 28 Years Later: The Bone Temple to A$AP Rocky: your complete entertainment guide to the week ahead
Another visit to the UK’s putrid zombie aftermath, and the polymath rapper returns after eight years with a collb-packed blockbuster28 Years Later: The Bone TempleOut nowIt would have been hard to imagine in 2002 that 28 Days Later would spawn something so different (and that’s probably a good thing; who wants identikit sequels?). The post-apocalyptic UK is now almost unrecognisable in this Nia DaCosta-directed, Alex Garland-scripted instalment, with violent tribes competing for scant resources.Rental FamilyOut now In this Japan-set drama from director Hikari, Brendan Fraser plays an actor hoping to land a decent role after appearing in a hit toothpaste commercial. He is hired by a company that provides family stand-ins for events, leading to some unexpectedly genuine connections.The Voice of Hind RajabOut nowUsing real audio footage, this Gaza-set film dramatises the death of six-year-old Hind Rajab, who was trapped on the phone for three hours in a car surrounded by six relatives killed by Israeli forces, only to be shot dead herself, after soldiers fired 335 rounds of ammunition into the car and the ambulance that came to collect the little girl, also killing two paramedics
Jimmy Kimmel on the midterms: ‘We can’t have an election soon enough’
Late-night hosts covered alarming new comments by Donald Trump as well as his outburst at a heckler in Michigan.On Jimmy Kimmel Live! the host said that in the first two weeks of 2026, “all hell has broken loose” and “if this was Jenga, there’d be blocks of wood all over the house.”He spoke about Trump threatening to invoke the Insurrection Act as a result of his ICE officers causing chaos in Minneapolis. Kimmel joked that “he hasn’t been able to get an insurrection for years”.The host said that instead of trying to de-escalate the situation, he is doing the opposite and that “he turns the temperature up on everything but his wife
Civilised but casual, often hilarious, Adelaide writers’ week is everything a festival should be – except this year | Tory Shepherd
The sun almost always shines on Adelaide writers’ week, held on Kaurna land each year at the tail end of summer.For those who start looking forward to it as soon as soon as the Christmas tree is packed away (or earlier, frankly) there’s a sense of loss, of betrayal, at the omnishambles that has led to its cancellation this year.We’re bereft, and angry – not least because some of the most vocal critics seem to have no idea what writers’ week actually is.During Adelaide’s Mad March, the city’s parklands are home to the festival fringe’s sprawling performance spaces, bars and restaurants. On a Sunday you might leave behind the carnival chaos of the Garden of Unearthly Delights
‘Soon I will die. And I will go with a great orgasm’: the last rites of Alejandro Jodorowsky
The Chilean film-maker’s psychedelic work earned him the title ‘king of the midnight movie’, and a fan in John Lennon. Now the 96-year-old is ready for the end – but first there is more living to doThe Guardian’s journalism is independent. We will earn a commission if you buy something through an affiliate link. Learn more.There is an apocryphal story of an ageing Orson Welles introducing himself to the guests at a half-empty town hall
Call this social cohesion? The war of words that laid waste to the 2026 Adelaide writers’ festival
How a boardroom flare-up sparked an international boycott – and a looming defamation battleIt began as a quiet programming dispute in the genteel city of churches.But by Wednesday morning, a frantic, six-day war of words had culminated in the end of the 2026 Adelaide writers’ week and total institutional collapse.What started with the discreet exit of a business titan and arts board veteran spiralled into boardroom carnage last weekend, with mass resignations, lawyers’ letters of demands and allegations of racism and hypocrisy flung by all sides.By the time the writers’ week director, Louise Adler, walked, the boycott of writers, commentators and academics had gone global and the state’s premier cultural event had become a hollowed-out shell.The cancellation of AWW may only be the opening act
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