Federal Reserve Governor Upholds Central Bank Independence
The statement was made after Fed chair Jerome Powell said a U.S. president does not have the authority to fire or demote him.
Federal Reserve Governor Adriana Kugler emphasizes the importance of maintaining the American central bank’s independent existence, cautioning that government interference could have negative consequences.
“It has been widely recognized—and is a finding of economic research—that central bank independence is fundamental to achieving good policy and good economic outcomes,” Kugler said in a Nov. 14 speech in Uruguay. “It is not sufficient by itself to achieve those goals, but, over time, it is almost always necessary.”
She explained that central bank policies have a significant impact on prices, interest rates, employment, and income in the economy. Policies that promote employment growth and economic activity contribute to inflation, while those aiming to lower inflation tend to slow down economic activity and employment growth.
Kugler highlighted the contrasting priorities between an independent central bank and an elected government, which focuses on national policy for a shorter term.
“An elected government may prioritize short-term goals, such as reducing unemployment rates, without much concern for long-term impacts on inflation and growth,” she stated.
Delegating monetary policy to an independent entity like the central bank helps avoid undesirable economic cycles and price destabilization, according to Kugler.
Related Stories
Kugler’s statement on central bank independence came following President-elect Donald Trump’s hint at the possible removal of Federal Reserve chairman Jerome Powell, which would be seen as political interference in the central bank. Powell was appointed by Trump during his administration in 2017 and assumed office in 2018.
In a Nov. 7 post, ING bank highlighted that Powell would resist any attempt at his removal, asserting the Fed’s independence.
“However, Powell’s term ends in February 2026, and Trump could nominate a candidate more aligned with his views on interest rate policy.”
Trump Versus Powell
Recently, Powell was asked in a news conference if he would step down if requested by President-elect Trump. Powell unequivocally replied, “No.”
Regarding the president’s authority to intervene in central bank matters by removing or demoting him, Powell stated that such actions are “not allowed by law.”
In 2019, Trump criticized Powell for his handling of interest rates, expressing a desire for the central bank to lower the Fed’s benchmark rates to zero.
“Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!” Trump wrote in a September 2019 post on the social media platform X.
Financial services company Charles Schwab stated in a Nov. 14 report that the markets will monitor whether the new Trump administration takes actions to “weaken the Fed’s independence.”
None of the current Fed governors will end their terms before 2026, making any changes to these positions before their expiry likely to raise “complex legal questions.”
In a Nov. 9 social media post, former Texas congressman Ron Paul criticized Powell’s stance and questioned the legal legitimacy of the institution itself.
“Powell didn’t mention, however, that The Federal Reserve is unconstitutional to begin with. No power was ever granted to the federal government to create a monopoly bank that manipulates interest rates and counterfeits money,” he wrote.
“So the big issue is not who has more authority over the other; the president or the Fed chairman. The issue is that the Federal Reserve should not exist at all!”
