By Jules Rimmer
Threats to the Federal Reserve’s independence have been coming thick and fast of late
A poll of economists in the Financial Times called it “long-term damage” while the President of the European Central Bank referred to it as “serious damage”, but the conclusion drawn by both parties about the threat to U.S. Federal Reserve independence was essentially the same – and unequivocal: it’s bad news.
The observations come as U.S. President Donald Trump continues to harangue the Fed to sharply lower interest rates, in a campaign that has included ad hominem attacks on Fed Chair Jerome Powell alongside accusations he overspent in the renovations to the Federal reserved building, and also an attempt to sack Fed governor Lisa Cook.
Ninety-four percent of respondents in the FT’s survey did not feel financial markets have adequately priced in the risks posed by the White House interventions in the Fed’s policy.
While ECB President Christine Lagarde is just one economist (albeit a very important one) the alarm bell she sounded in a radio interview Monday morning coincided in timing and message with the FT survey of 94 U.S. and E.U. economists.
Given that Lagarde took the trouble of attaching a link to her interview in a posting on X, it’s clear that she wanted her views to be widely disseminated.
Lagarde posited, “If U.S. monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world”.
The FT survey published Monday articulates these economists’ fears that higher inflation and a loss of confidence in U.S. government debt are the most probable outcomes of White House pressure and interference.
What’s the single-biggest economic risk if the Fed’s independence is eroded?
The FT’s survey found 89 economists already believe the Fed’s credibility was already impaired and more than a quarter expressed their doubts that by the end of Trump’s second term in 2029, “the Fed will be able to fulfil its mandate to set U.S. borrowing costs free from political influence.”
The FT’s article notes consensus among economists that weakening the central bank’s independence would inflict significant damage on the U.S. economy because it pursues its mandate to lower inflation and maintain financial stability. These principles may be sacrificed on the altar of Trump’s determination to lower borrowing costs, the column reports.
-Jules Rimmer
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09-01-25 0847ET
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