For Martin Redorado, a political leader who demands questionable policies from central banks and tests legal limits to make them happen, the conflict between Donald Trump and the Federal Reserve feels surprisingly familiar to Martin Ledorado, who sits in Argentina.

Ledorado was fired as head of Argentina’s central bank in 2010 after resisting then-President Cristina Kirchner’s order to hand over reserves to repay the country’s debt.

He successfully challenged the ruling in court, but ultimately resigned after telling the BBC that the pressure was “unbearable”.

Today, this conflict is remembered as one of the early warnings of the economic turmoil that would later engulf Argentina, exposing it to high inflation and a currency collapse from which it is still recovering.

President Trump’s battle with the Federal Reserve has sparked debate about whether the United States may be headed in a similar direction.

Since returning to office last year, Trump has accused U.S. central bank chairman Jerome Powell of mismanaging the economy and driving up the cost of government debt by keeping interest rates too high.

But his intervention in the bank was not limited to complaints on social media.

In August, President Trump Fire top policymaker Lisa Cookthis decision is currently being challenged in the Supreme Court.

Then on Sunday, Chairman Powell said the Fed faces a criminal investigation from the Justice Departmentrelated to cost overruns in real estate renovations, a concern that Chairman Powell dismissed as a “pretext.”

Market reaction to the drama remains muted, but analysts said it is a sign that investors expect the bank to continue operating freely.

But that confidence will be tested in the coming weeks. The Supreme Court is scheduled to hear arguments on Cook’s removal, and the president is expected to announce a candidate to replace Powell, whose term as Fed chair ends in May.

Ledorado said he was surprised to see echoes of his own battle taking place in the United States, which has long been held up as a global example.

“This seems to be more of an emerging market story,” he said.

He’s not alone in making this comparison.

“This is what we do in a banana republic, this is not what should happen in the United States,” economist Jason Furman, who led former President Barack Obama’s Council of Economic Advisers, told the BBC, using a derogatory term often used to describe countries with unstable politics and economies subject to the whims of the ruling class.

Former Federal Reserve Chair Janet Yellen, who served as Treasury secretary under President Joe Biden, raised similar concerns in an interview with CNBC, warning against the way President Trump wants the Fed to conduct policy. “This is the road to a banana republic,” she said.

President Trump remains defiant in the face of calls to limit interference in the powerful banks. player, They have access to vast financial reserves and can influence borrowing costs across the economy.

He said he had nothing to do with interest rates and denied involvement in the criminal investigation, but insisted he had the right to express his opinion.

“I think that’s what I’m doing,” he said.

But economists say Trump continues to attack the economy, putting the economy at risk, and say there is hard evidence that central banks produce the best results when they operate free of political pressure.

This consensus emerged from the painful inflationary conflicts of the 1970s, including in the United States, and led to a wave of reforms worldwide.

Since then, extensive academic research has linked central bank independence to lower inflation over time.

Experts say elected officials have too much incentive to secure immediate stimulus or use the power of banks to satisfy certain constituencies, even if it could hurt the economy in the long run.

But while President Trump’s pressure on the Fed is unprecedented for the United States, he is not the only head of state to ignore recommendations to leave central bankers alone.

In the UK, former Prime Minister Liz Truss attacked the Bank of England, criticizing its independence and accusing it of having too much power.

A study of central banks in 118 countries from 2010 to 2018 found that each year, about 10% of central banks faced pressure from political leaders like President Trump to cut interest rates to lower borrowing costs and provide short-term economic stimulus.

Carola Binder, an economist at the University of Texas at Austin who conducted the study, said pressure on central bankers was most likely to occur in countries with nationalist or populist leaders, after which inflation typically rose.

In Turkey, for example, President Recep Tayyip Erdogan had three central bank leaders in three years from 2019 to 2021, looking for someone to implement his unconventional view that high interest rates fuel inflation.

Inflation soared above 50% after the bank caved to his demands, and he agreed to appoint a leader with more moderate views.

Binder’s research found that even in countries where central banks resisted intervention, inflation tended to rise, albeit to a lesser extent, suggesting that pressure alone can be damaging.

Binder said this pressure may have effectively led people to doubt central banks’ ability to manage inflation and to expect future price increases, a view that is often self-fulfilling.

So far, polls show that U.S. inflation expectations remain subdued, and the importance of the current battle is likely to be more political than economic, Binder said.

Still, he warned, “that’s a possibility for the U.S., and it could be inflationary.”

Even if the Fed becomes a tool of the president, analysts believe the U.S. economy is unlikely to face as severe an impact as smaller countries like Argentina or Turkey.

But some say there are already signs that the battle is having an impact, pointing to an 8% drop in the dollar’s value against a basket of currencies last year.

Carolina Garriga, a political science professor at the University of Essex, said it may be difficult to pinpoint the cause of the economic damage in the long term, whether it is the loss of central bank independence or often related issues such as the erosion of democracy and the rule of law.

But she said immediate market movements, such as the sharp drop in the dollar after the announcement of the Fed’s criminal investigation, show investors think central bank independence is an important piece of the puzzle.

“It’s hard to disentangle, but it’s not hard to disentangle market reactions to announcements.”

Since the criminal investigation became public, key Wall Street leaders and members of Congress, including some Republicans, have been vocal in their defense of the Fed.

The Supreme Court justices also said they view the bank as different from other government agencies that have tolerated Trump’s removal from office.

Analysts say they believe the Fed can maintain confidence in its policies, noting that the Fed sets interest rates through a 12-member committee, but only seven are appointed by the president, and each member serves a long and staggered term.

“There’s some concern,” said Jennifer McCune, chief global economist at Capital Economics. “But there is no switch here that trust in American institutions is lost and therefore we are in a downward spiral.”

But much of the Fed’s reputation for independence is rooted in practice rather than legal design. in Global comparison of central bank independencethe Fed ranks in the bottom third when measured by legal characteristics.

Redorado said he remains hopeful that the strength of U.S. institutions, unlike Argentina, will prevail, although he warned that President Trump is taking unnecessary risks.

“President Trump is really beating himself up by fighting a fight like this,” he said. “He should know better.”