The days of the US dollar this year haven't been very good. In 2025, the US dollar index plummeted by about 9%, marking the worst annual performance since 2017. Institutions predict that it will continue to decline next year, by around 3%. The reasons behind this are not complicated—The Federal Reserve is cutting interest rates, the US fiscal deficit remains high, and global confidence in the dollar is gradually loosening.

But what’s truly interesting is that there has been a subtle change in the power structure of US monetary policy.

On one side is the traditional Federal Reserve. Powell has faced quite a dilemma in recent years—weak employment data, inflation stubbornly refusing to fully retreat, which has led to a policy deadlock. By 2025, the Fed has already cut rates three times, but the problem is that its independence is being eroded by various political pressures.

On the other side is an invisible player. US Treasury Secretary Yellen is often called the "shadow Fed chair," which sounds exaggerated, but the facts are not far off. The Federal Reserve’s balance sheet and the Treasury’s balance sheet are essentially "tied together," with the Fed basically acting as a backstop for fiscal spending. Monetary policy is no longer operating independently but has become a tool for fiscal expansion.

Looking ahead to 2026, the risk points are clear: the Fed chair is likely to be replaced by a dovish figure, and rate cuts may continue; at the same time, this "fusion" of fiscal and monetary policy could push inflation higher, directly weakening the dollar’s credibility. Coupled with the intervention of the "shadow Fed," the uncertainty of the dollar’s trajectory increases even more. For those holding dollar assets, this is a signal to watch carefully.