Central banks must fight for their independence, despite cracks in the status quo
Should inflation surge in an already capacity-strained economy, the Federal Reserve may be forced to maintain high interest rates, setting the stage for a protracted conflict between a Trump administration and the central bank.
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Throughout his first presidency, Donald Trump pressured the Federal Reserve to cut rates, and he shows no sign of changing his rhetoric. At a press conference in August 2024, Trump declared, “I feel the president should have at least a say … I think I have a better instinct than, in many cases, people that would be on the Federal Reserve — or the chairman.”
Trump’s economic vision foreshadows significant political and economic clashes in the years ahead. Should inflation surge in an already capacity-strained economy, the Federal Reserve may be forced to maintain high interest rates, setting the stage for a protracted conflict between a Trump administration and the central bank.
Turkey offers a cautionary tale: Since 2016, the country has dismissed six central bank governors for resisting political interference. These dismissals, coupled with legal constraints on rate hikes, have fueled rampant inflation, soaring from 10% in 2019 to a staggering 85% in 2022. In 2024, average inflation remained little less than 50%.
In the U.K., Liz Truss briefly considered revising the Bank of England’s charter in 2022, a move billed as “deeply irresponsible” by the opposing party and torpedoed by the markets.
[This article has been reproduced with permission from IESE Business School. www.iese.edu/ Views expressed are personal.]