Top Federal Reserve official defends central bank’s independence in wake of Trump win
WASHINGTON — A Federal Reserve official issued a lengthy defense of the central bank’s political independence Thursday, just days after former President Donald Trump outspoken Fed criticwon re-election.
“It is widely recognized – and is a finding from economic research – that the independence of central banks is fundamental to achieving good policies and economic outcomes,” said Adriana Kugler, one of the seven members of the board of directors from the Fed, in prepared remarks for an economic conference in Montevideo, Uruguay.
Kugler added that the research specifically shows that greater central bank independence in advanced economies is associated with lower inflation.
Kugler spoke just a week after Fed Chairman Jerome Powell strongly denied that Trump had the legal authority to fire him, as the newly elected president admitted during his first term. Powell also said he would not resign if Trump asked.
“I threatened to fire him, there was a question of whether or not you could do that,” Trump said at the Economic Club of Chicago last month.
Trump said during the campaign that he would let Powell complete his term in May 2026. But in Chicago he also said, “I have the right to say that I think you should go up or down a little bit.”
Kugler’s comments addressed why most economists are opposed to the idea that politicians, even elected ones, have influence over interest rate decisions.
A central bank free from political pressure can take unpopular steps, Kugler said, such as raising interest rates, which could cause economic pain in the short term but yield long-term benefits by reducing inflation.
Furthermore, Kugler argued that an independent central bank has more credibility with the financial markets and the public. Consumers and business leaders generally expect inflation to remain low in the longer term. Such low inflation expectations can help reduce inflation after a sharp spike, such as the rise in consumer prices that occurred between 2021 and 2022, when inflation peaked at 9.1%. The government announced that figure on Wednesday had fallen up to 2.6%.
“Despite a very large inflation shock that started in 2021, available measures of longer-term inflation expectations have risen only slightly,” Kugler said. “Anchoring inflation expectations is one of the key elements leading to stable inflation.”