New York () – For more than 70 years, the United States central bank has operated as an independent government agency. When officials meet to decide where interest rates should be, they don’t consult the president or other elected officials, and for good reason.
That’s because, as a former Federal Reserve (Fed) chairman famously said, the job of central bankers is to remove the punch just as the party is getting started. In other words, they must make unpopular decisions that seek to benefit the economy in the long term.
But the Fed’s independence could be compromised once Donald Trump returns to the White House.
“I think the president should at least have an opinion there. I believe that strongly,” Trump said at a press conference in August, referring to the Fed’s interest rate decisions. “I made a lot of money. I was very successful. And I think I have a better instinct than, in many cases, the people who would be on the Federal Reserve, or the president.”
It’s unclear whether Trump, or any president, could take away the Fed’s independence on his own or whether it would require congressional approval. Representatives for the Trump campaign did not respond to ‘s request for comment, while a Fed spokesperson declined to comment.
After an avalanche of criticism, Trump attempted to soften his previous comments. “A president can certainly talk about interest rates because I think I have very good instincts,” Trump said in a interview with Bloomberg News less than two weeks after claiming it deserved an opinion. “That doesn’t mean I’m making the decision, but it does mean I should have the right to be able to talk about it like anyone else.”
The Fed is not designed to win popularity contests. Americans and politicians often hate the actions the Fed takes for the economy; Just ask anyone who has had to pay 8% on a mortgage lately.
However, despite calls to lower rates sooner, the Fed kept them at a two-decade high for a year to rein in persistent inflation. It wasn’t until September that they finally reduced them. Many elected officials had already been calling for lower rates by then, but their arguments were probably not considered in monetary policy meetings.
Lowering interest rates too soon could have risked reigniting inflation, which is currently just a tenth of a percentage point higher than the Fed’s 2% target. Higher rates generally help keep inflation in check by making It becomes more expensive for consumers and businesses to borrow money, which, in turn, restricts prices from rising much further.
That’s why countries with independent central banks generally have lower inflation, Fed Chair Jerome Powell told reporters in September after central bankers cut rates by half a point.
“It is a good institutional arrangement, which has been good for the public, and I firmly hope and believe that it will continue,” he said.
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