Dr. Hamed Kasasbeh

U.S. monetary policy is entering a delicate phase as the term of the current Federal Reserve Chair approaches its end in May 2026 and preparations begin to select a successor. This comes amid slowing growth, persistent inflation, and a ballooning public debt exceeding $34 trillion, alongside repeated government shutdowns and political divisions over debt management—factors that make the U.S. fiscal landscape increasingly complex and uncertain.

Since the 1951 Accord between the U.S. Treasury and the Federal Reserve, the separation between fiscal and monetary policy has been a cornerstone of dollar stability and market confidence. Yet, growing fiscal deficits in recent years have blurred that line. While the government seeks easier borrowing conditions to manage its debt burden, the Fed aims to curb inflation through higher interest rates. This tension between fiscal expansion and monetary tightening has created hesitation in policy direction and weakened market expectations.

The Fed Chair recently acknowledged this reality, admitting that the U.S. economy is “on a path that is not without risks,” given conflicting indicators and less reliable data due to the recent government shutdowns. This uncertainty has made it increasingly difficult to outline a consistent and predictable monetary course.

Today, the Federal Reserve faces the challenge of preserving its independence in an environment of heightened political and economic volatility. The lack of alignment between fiscal and monetary policies threatens not only domestic price stability but also global confidence in the dollar — the cornerstone of the international financial system since World War II.

Meanwhile, emerging economies are seizing this moment to reconsider the structure of the global monetary order. The BRICS countries are expanding the use of local currencies in trade, while other economies are exploring ways to reduce reliance on the dollar. These moves remain gradual but are gaining traction amid ongoing uncertainty surrounding U.S. monetary policy.

Moreover, traditional monetary tools have lost some of their effectiveness in confronting inflation driven by geopolitical tensions and supply chain disruptions. This reality compels central banks — particularly the Fed — to develop more flexible instruments that leverage financial technology and minimize the time lag between policy decisions and their impact.

At the global level, any movement in U.S. interest rates, whether upward or downward, directly affects emerging markets by altering capital flows and the cost of dollar-denominated debt. Hence, it has become essential for these economies to build more diversified reserves and strengthen monetary flexibility to reduce vulnerability to U.S. rate cycles.

As the current term draws to a close, the U.S. administration has begun preparing a shortlist of potential successors for the Fed Chair — a sign of early recognition of the sensitivity of the coming period. If Washington succeeds in balancing fiscal discipline with monetary independence, the dollar will likely remain the world’s anchor of trust. But if it fails, the global system may evolve toward a more pluralistic monetary order, less dependent on a single currency.