The Road Not Taken…
Comparing U.S. and Turkey's Economic and Geopolitical Conditions (2019-2024)
Introduction
The United States and Turkey present contrasting examples of how geopolitics and economic policy influence national outcomes. Between 2019 and 2024, Turkey’s economic trajectory was shaped by President Erdogan’s unprecedented influence over monetary policy, resulting in unconventional interest rate decisions and soaring inflation. Meanwhile, the United States’ independent Federal Reserve maintained a more orthodox approach to inflation targeting, even amid political pressures. This paper compares these dynamics, focusing on the interplay between central bank rates and consumer price index (CPI) levels, before projecting two potential paths for U.S. monetary policy under differing political scenarios.
1. A Tale of Two Economies: The United States and Turkey (2019-2024)
1.1 Central Bank Policy and CPI Responses
Turkey : Beginning in 2019, Turkey embarked on a period of unorthodox monetary policy under President Erdogan, who asserted that high interest rates caused inflation—a view contrary to standard economic theory. The Central Bank of Turkey, under political pressure, slashed interest rates despite surging inflation. By 2022, Turkey’s CPI had skyrocketed to over 85%, one of the highest rates globally, as the lira plummeted against the U.S. dollar.
United States : Over the same period, the U.S. Federal Reserve demonstrated resilience to political influence, adhering to data-driven decision-making. After pandemic-related disruptions, the Fed aggressively raised rates in 2022-2023 to combat inflation, which peaked at 9.1% in June 2022 before receding to 3.2% by late 2023. However, following President Trump’s 2024 election victory, the geopolitical and economic landscape began to shift. President Trump has reintroduced the threat of tariffs on various countries, targeting global competitors, and publicly declared that the Federal Reserve needs to lower interest rates. He has expressed confidence that the Fed will heed his demands, putting the Fed in a curious state and opening a debate over the independence of monetary policy in the United States.
1.2 Geopolitical Contexts
Turkey faced heightened geopolitical tensions due to its strategic location and complex relationships with NATO and neighboring nations. Economic instability eroded investor confidence, leading to capital flight and further depreciation of the lira.
Conversely, the U.S. benefited from the dollar’s status as a global reserve currency, which attracted capital during times of uncertainty, even as it dealt with geopolitical challenges such as the U.S.-China trade war and Russia-Ukraine conflict. With Trump’s 2025 return to office, tariff wars have reemerged, creating potential volatility in trade flows and further challenging global economic relationships.
2. Projecting Three Scenarios for U.S. Monetary Policy (2024-2028)
2.1 Scenario 1: President Trump Exerts Control Over Monetary Policy
If President Trump successfully pressures the Federal Reserve to adopt expansionary policies, the U.S. may witness parallels with Turkey’s economic experience. Lowering rates despite inflationary pressures could:
● Short-Term Effects : Stimulate borrowing, consumption, and economic growth.
● Long-Term Risks : Undermine Federal Reserve independence, erode investor confidence, and trigger inflationary spirals. The dollar’s value could weaken, and equity markets may experience volatility.
Projected CPI: 6-8% by 2026. Projected Interest Rate: Below 3%.
2.2 Scenario 2: Fed Resists Political Influence
In this scenario, the Federal Reserve maintains its independence, adhering to data-driven inflation targeting. Trump’s rhetoric against the Fed may increase political tensions but fail to alter monetary policy outcomes.
● Short-Term Effects : Maintain moderate to elevated inflation, volatility in capital markets as market makers and investors react to headlines, weakening economic data and wager on outcomes.
● Long-Term Benefits : Preserve dollar strength, protect against persistent inflationary pressures and preserve investor confidence while ensuring sustainable economic growth as the economy transitions to a more automated and technologically advanced system.
Projected CPI: 2-3% by 2026. Projected Interest Rate: 4-5%.
2.3 Scenario 3: Limited Presidential Influence Over Monetary Policy
In what is likely the most probable scenario, President Trump exerts some influence over the Federal Reserve - enough to save-face and beat his chest - but not as much as he desires or enough to have a systemically relevant impact. While his public statements and policy preferences create political pressure, institutional controls ultimately hold and despite market volatility there is not a full capitulation of any particular asset class.
● Short-Term Effects : Interest rates lowered modestly but not to levels that have a significant impact on the economy. Slight boost to consumer sentiment and business investment. Capital Markets are likely to experience volatility as investors react to the rates news and debate the financial impact of Executive Branch intervention.
● Long-Term Benefits : Moderate, albeit delayed, increase in inflationary pressure. Market volatility and potential erosion of investor confidence, particularly in the bond space which could see the long-end trend higher and yield curve steepen.
Projected CPI: 4-5% by 2026. Projected Interest Rate: 3-4%.
3. Conclusion
The contrasting experiences of the United States and Turkey between 2019 and 2024 underscore the critical importance of central bank independence. While Turkey’s politically influenced monetary policy led to hyperinflation and economic instability, the U.S. benefited from a more orthodox approach until recent shifts in political dynamics.
Looking forward, the U.S. faces pivotal choices regarding its monetary policy framework. All three scenarios - whether the Federal Reserve succumbs to political pressure, maintains complete independence, or navigates a middle-ground - one constant theme remains: market volatility. Each path presents its unique risks, but the uncertainty surrounding political influence, central bank independence, and investor sentiment - and subsequent flows - ensures that volatility will be the defining feature of the economic landscape for the next few years.
