{"id":411928,"date":"2026-01-14T08:49:07","date_gmt":"2026-01-14T08:49:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/411928\/"},"modified":"2026-01-14T08:49:07","modified_gmt":"2026-01-14T08:49:07","slug":"why-the-worlds-central-bankers-had-to-speak-up-against-trumps-attacks-on-the-fed","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/411928\/","title":{"rendered":"Why the world\u2019s central bankers had to speak up against Trump\u2019s attacks on the Fed"},"content":{"rendered":"

Central bankers from around the world have issued a joint statement of support<\/a> for US Federal Reserve Chair Jerome Powell, as he faces a criminal probe<\/a> on top of mounting pressure from US President Donald Trump to resign early.<\/p>\n

It is very unusual for the world\u2019s central bank governors to issue such a statement. But these are very unusual times.<\/p>\n

The reason so many senior central bankers \u2013 from Australia, Brazil, Canada, Europe, New Zealand, South Africa, South Korea, the United Kingdom and other countries, as well as the central banks\u2019 club the Bank for International Settlements \u2013 have spoken up is simple. US interest rate decisions have an impact around the world. They don\u2019t want a dangerous precedent set.<\/p>\n

Over the course of my career as an economist, much of it at the Reserve Bank of Australia<\/a> and the Bank for International Settlements<\/a>, I have seen independent central banks become the global norm in recent decades. <\/p>\n

Allowing central banks to set interest rates to achieve inflation targets has avoided a repeat of the sustained high inflation which broke out in the 1970s. <\/p>\n

Returning the setting of monetary policy to a politician, especially one as unpredictable as Trump, is an unwelcome prospect. <\/p>\n

What\u2019s happened<\/p>\n

Trump has repeatedly attacked the US Federal Reserve (known as the Fed) over many years. He has expressed his desire<\/a> to remove Powell before his term as chair runs out in May. But legislation says the president can only fire the Fed chair \u201cfor cause<\/a>\u201d, not on a whim. This is generally taken<\/a> to mean some illegal act. <\/p>\n

The Supreme Court is currently hearing<\/a> a case about whether the president has the power to remove another Fed board member, Lisa Cook. <\/p>\n

And this week, Powell revealed he had been served with a subpoena<\/a> by the US Department of Justice, threatening a criminal indictment relating to his testimony to the Senate banking committee about the US$2.5 billion renovations<\/a> to the Fed\u2019s historic office buildings.<\/p>\n

Trump has denied<\/a> any involvement in the investigation. <\/p>\n

But Powell released a strong statement<\/a> in defence of himself. He said the reference to the building works was a \u201cpretext\u201d and that the real issue was: <\/p>\n

whether the Fed will be able to continue to set interest rates based on evidence and economic conditions \u2013 or whether monetary policy will be directed by political pressure or intimidation. <\/p>\n<\/p>\n

US Federal Reserve Chair Jerome Powell\u2019s statement addressing the investigation.<\/p>\n

On Tuesday, more than a dozen of the world\u2019s leading central bankers put out a statement of support<\/a>:<\/p>\n

We stand in full solidarity with the Federal Reserve System and its Chair Jerome H Powell. The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability. <\/p>\n

Another statement of support<\/a> came from leading US economists \u2013 including all the living past chairs of the Fed. This included the legendary central bank \u201cmaestro<\/a>\u201d Alan Greenspan, appointed by Ronald Reagan and reappointed by George HW Bush, Bill Clinton and George W Bush. <\/p>\n

This statement warned undermining the independence of the Fed could have \u201chighly negative consequences\u201d for inflation and the functioning of the economy.<\/p>\n

Why it matters for global inflation<\/p>\n

Trump has said he wants the Fed to lower interest rates dramatically, from the current target range of 3.5\u20133.75%<\/a> down to 1%<\/a>. Most economists think this would lead to a large increase in inflation. <\/p>\n

At 2.8% in the US, inflation is already above the Fed\u2019s 2% target<\/a>. The Fed\u2019s interest rate would normally only drop to 1% during a serious recession. <\/p>\n

A clear example of the dangers of politicised central banks was when the Fed lowered interest rates before the 1972 presidential election. Many commentators attribute<\/a> this to pressure from then president Richard Nixon to improve his chances of re-election. This easing of monetary policy contributed to the high inflation of the mid-1970s.<\/p>\n

A more recent example<\/a> comes from Turkey. In the early 2020s, President Recep Tayyip Erdo\u011fan leaned on the country\u2019s central bank to cut interest rates. The result was very high inflation, eventually followed by very high interest rates to try to get inflation back under control.<\/p>\n

Trump should be careful what he wishes for<\/p>\n

What will happen if Trump is able to appoint a compliant Fed chair, and other board members, and if they actually lower the short-term interest rates they control to 1%? Expected inflation and then actual inflation would rise. <\/p>\n

This would lead to higher long-term interest rates. <\/p>\n

If Trump gets his way, US voters may face a greater affordability problem in the run-up to the mid-term elections in November. This could then be followed by a recession, as interest rates need to rise markedly to get inflation back down.<\/p>\n

And as over a dozen global central bank leaders have just warned us, what happens in the US matters worldwide.<\/p>\n","protected":false},"excerpt":{"rendered":"Central bankers from around the world have issued a joint statement of support for US Federal Reserve Chair…\n","protected":false},"author":2,"featured_media":411929,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-411928","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/411928","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=411928"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/411928\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/411929"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=411928"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=411928"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=411928"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}