Trump Deepens Dollar Woes, Saying He’s Not Concerned About Slump

Members of the Federal Reserve's key policy committee are free to vote their conscience. But a new study suggests that casting a vote against the majority carries a professional price, making the recent trend of dissent at the central bank all the more significant.

According to a research paper published by the National Bureau of Economic Research (NBER), members of the Federal Open Market Committee (FOMC) who vote against the consensus are less likely to influence future policy decisions.

This finding adds critical context to the Fed's recent meetings, which have seen an unusual number of dissenting votes amid sharp divisions over how to manage the economy.

The Price of Breaking Consensus

Researchers from institutions including the University of California, Berkeley, and the Fed itself analyzed historical meeting transcripts and voting records to understand the group dynamics of the FOMC. Most of the committee's votes on interest rates are unanimous, and the study sought to find out why.

The paper revealed two key findings:

• The Fed Chair is highly influential in guiding the committee toward a unanimous opinion.

• When a member dissents, their preferred interest rate policy becomes about one-third less likely to be adopted at a later meeting.

The study suggests this could be a form of punishment for breaking ranks. However, the authors also consider an alternative explanation: "FOMC members only dissent when they realize the battle is lost and their viewpoint will not carry the day in future meetings."

Regardless of the motive, the outcome is the same. The researchers concluded that "dissent not only does not move subsequent committee decisions toward the individual's policy preference, but comes at the added cost of future loss of influence."

A Recent Spike in Dissenting Votes

This dynamic makes the recent string of disagreements at the Fed particularly noteworthy. At its last three meetings, the majority of officials voted for a quarter-point rate cut, but each decision was met with public dissents. Some members argued for holding rates steady, while others pushed for even deeper cuts.

This breakdown in consensus underscores a fundamental dilemma facing the central bank. Officials are torn between two competing threats: stubbornly high inflation on one side and a worrying slowdown in the job market on the other.

Recent speeches from FOMC members have laid bare these sharply divergent economic outlooks. One camp views inflation as the primary danger, while the other sees the cooling labor market as a signal that rising unemployment could be imminent.

The federal funds rate is the Fed's primary tool for navigating its dual mandate from Congress—to maintain both low inflation and high employment. As the committee weighs its next move, it is widely expected to hold the rate steady on Wednesday to gather more data on how its recent policies have impacted the economy.

Source: Bloomberg

The United States is not yet prepared to lift tariffs on Indian goods, as India must first do more to address Washington's concerns over its continued purchases of Russian oil.

According to US Trade Representative Jamieson Greer, a deal to provide tariff relief remains distant until India further reduces its reliance on discounted Russian crude.

Russian Oil Remains a Key Obstacle

In a Fox Business interview on Tuesday, Greer acknowledged that New Delhi has "made a lot of progress" in curbing its intake of Russian crude. However, he noted that completely weaning off these supplies is challenging for India because "they like the discount that you get from Russian oil."

This dynamic is the central sticking point in ongoing trade negotiations. The 50% tariff, imposed by President Donald Trump last year, was a direct response to the view that India's oil purchases were helping to finance Russia's war effort in Ukraine.

"I am in frequent contact with my counterpart in India. I have a great working relationship with him, but they still have a ways to go on this point," Greer said, signaling that current efforts are insufficient.

Analysts project that discounted Russian crude will continue to represent a significant portion of India's oil imports, a trend that could persist well into 2026.

India Finalizes Major Trade Pact with EU

While talks with the U.S. have stalled, India has successfully finalized a long-awaited free-trade agreement with the European Union. The pact, which was two decades in the making, is widely seen as a strategic move to counter aggressive American trade policies.

Greer commented on the new agreement, stating that India appears to be the clear winner.

"I think India comes out on top on this. Frankly, they have more market access into Europe. It sounds like they have some additional immigration rights," he said Tuesday.

He added that India is positioned for a "heyday" with the deal, leveraging its low-cost labor. Greer contrasted the EU's approach with Washington's, noting, "it looks like the EU is doubling down on globalization when we're trying to fix some of the problems with globalization here in the US."

The Japanese yen surged to the 152 level against the U.S. dollar on Tuesday, reaching its strongest point since November 7. The move was driven by comments from Japan's finance minister that fueled speculation of a potential joint currency intervention with the United States.

Japan Hints at Coordinated Market Action

Speaking to reporters after a virtual meeting of G7 finance ministers, Japanese Finance Minister Satsuki Katayama stated, "We will take appropriate action as necessary in close cooperation with U.S. authorities."

This statement was interpreted by traders as a signal that officials in both countries might be preparing to step in to support the yen and prevent it from weakening further.

Adding to the speculation were reports from the previous week that the Federal Reserve had conducted a "rate check"—a practice often seen as a preliminary step before a foreign exchange intervention. However, when asked about these checks on Monday, Japan's top currency diplomat, Atsushi Mimura, said he had "no intention of answering."

US Response and Broader Dollar Trends

The view from the White House presented a different perspective. When asked if he was concerned about a weakening dollar, U.S. President Donald Trump told reporters in Iowa, "No, I think it's great." He added that he wanted the dollar "to seek its own level, which is the fair thing to do."

The yen's advance comes amid a period of broad weakness for the U.S. dollar. The dollar index, which measures its value against a basket of other currencies, has fallen to its lowest level since February 2022.

Several factors have contributed to the dollar's decline, including:

• The Trump administration's stated desire for the Federal Reserve to lower interest rates.

• Ongoing geopolitical risks.

• Friction related to trade tariffs.

How Traders Are Positioned

The sentiment against the dollar is also reflected in market positioning. According to a January Bank of America survey of approximately 200 fund managers, the most crowded trades were being long gold, buying tech stocks, and shorting the U.S. dollar.

Canadian Prime Minister Mark Carney on Tuesday forcefully denied claims from the U.S. Treasury Secretary that he had backtracked on critical remarks about the Trump administration’s global economic policies.

Speaking to reporters in Ottawa, Carney insisted he stood by his recent speech in Davos, Switzerland, where he had challenged the current U.S.-led world order.

"To be absolutely clear, and I said this to the president, I meant what I said in Davos," Carney stated, directly refuting comments made by Treasury Secretary Scott Bessent.

Figure 1: Canadian Prime Minister Mark Carney addresses the House of Commons in Ottawa, where he publicly reaffirmed his government's stance on global trade policy.

The Davos Speech That Sparked a Diplomatic Firestorm

The dispute stems from Carney's address to the World Economic Forum, which earned a rare standing ovation. In his speech, the Prime Minister declared that the established global order was in the "midst of a rupture" and warned that the "bargain" of American hegemony "no longer works."

He added that "great powers" have exploited and weaponized economic tools like tariffs—a pointed critique delivered as President Donald Trump was pressuring Europe over the potential U.S. purchase of Greenland from Denmark.

Carney explained on Tuesday that his speech reflected "that Canada was the first country to understand the change in U.S. trade policy that he [Trump] had initiated, and we're responding to that."

Washington's Pushback and Tariff Threats

The U.S. administration's response was swift and critical. In a Fox News interview on Monday, Bessent claimed that during a phone call with Trump earlier that day, Carney was "very aggressively walking back some of the unfortunate remarks he made at Davos."

President Trump also criticized the Canadian leader, accusing him and his country of being ungrateful. The White House followed by rescinding Canada's invitation to join the "Board of Peace."

Over the weekend, the situation escalated when Trump threatened to impose a 100% tariff on Canadian imports if Ottawa proceeds with a trade deal with China.

Carney Clarifies Call with Trump

Carney confirmed the call with Trump took place, noting that the U.S. president had initiated it. He said they discussed several topics, including the war in Ukraine and "Arctic security," a reference to the Greenland controversy.

However, he firmly rejected the characterization of the conversation. When asked directly if he had walked back his Davos remarks, Carney gave a simple answer: "No."

He said the context of the call was to highlight "what Canada is doing positively to build new partnerships around the world," including "our arrangement with China."

In response to the Trump administration's unpredictable use of tariffs, Canada and other U.S. trading partners have been actively forging new economic ties with other major economies. Carney told reporters he boasted to Trump that Canada had secured "12 new deals on four continents in six months," adding that the president "was impressed."

Despite the tariff threats, Carney stated on Sunday that Canada does not currently intend to pursue a full free trade agreement with China. The U.S. Treasury Department has not yet responded to requests for comment on Carney’s latest remarks.

The Brazilian real surged to its strongest level since May 2024 on Tuesday, closing at R5.20 against the US dollar. The currency's impressive performance marks a nearly 14% appreciation over the past 12 months, driven by a combination of domestic policy and a global decline in the dollar.

The real has been on a sharp upward trend since December 23, when it traded near R5.59 to the dollar.

Brazil's High Interest Rates Attract Capital

A key driver behind the real's strength is the central bank's firm monetary policy. According to Milene Dellatore, a director at Brazilian prop firm MIDE, the bank's decision to maintain its target rate at 15% since last June has been a major factor.

Policymakers are expected to hold rates steady at their meeting on Wednesday, with potential cuts not anticipated until March. This high-rate environment makes Brazilian assets attractive to global investors.

Further supporting the currency are two additional factors:

• Cooling Inflation: Brazil's headline inflation slowed to an annual rate of 4.26% in December, coming in lower than market forecasts.

• Institutional Stability: A widespread perception of short-term stability in the country is creating a favorable moment for global capital to flow into Brazil, Dellatore noted.

A Weaker US Dollar Provides a Global Tailwind

The real's rally is also a story about the US dollar's global retreat. The US Dollar Index (DXY), which measures the greenback against six major currencies, fell for a fourth straight session on Tuesday, hitting its lowest point since February 2022.

Several issues in the United States are weighing on its currency. Dellatore pointed to political uncertainty, including what she described as "President Donald Trump's more volatile rhetoric," as a source of downward pressure.

Fears of a potential US government shutdown have also contributed to the dollar's weakness this week. As a result, Dellatore added, investors are actively seeking opportunities in emerging markets and other assets outside the US.

All Eyes on Central Bank Meetings

Investors are now closely watching the outcomes of monetary policy meetings in both countries. The US Federal Reserve is set to conclude its first meeting of the year on Wednesday, where it is widely expected to leave the federal funds rate unchanged. Brazil's central bank is also anticipated to hold its policy rate steady, reinforcing the current dynamics that favor the real.