WASHINGTON – A Federal Reserve official gave a lengthy defense of the central bank's political independence Thursday, just days after former President Donald Trump, an outspoken Fed critic, won re-election.
“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,” Adriana Kugler, one of the seven members of the Fed's governing board, said in prepared remarks for an economic conference in Montevideo, Uruguay.
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Kugler added that the research in particular finds that greater independence for central banks in advanced economies is related to lower inflation.
Kugler spoke just a week after Fed Chair Jerome Powell tersely denied that Trump had the legal authority to fire him, as the president-elect has acknowledged he considered doing during his first term. Powell also said he wouldn't resign if Trump asked.
“I was threatening to terminate him, there was a question as to whether or not you could," Trump said last month at the Economic Club of Chicago.
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 I think you should go up or down a little bit.”
Kugler's remarks addressed why most economists are opposed to the idea of politicians, even elected ones, having influence over interest-rate decisions.
A central bank free of political pressures can take unpopular steps, Kugler said, such as raising interest rates, that might cause short-term economic pain but can carry long-term benefits by bringing down inflation.
In addition, Kugler argued that an independent central bank has more credibility with financial markets and the public. Consumers and business leaders typically expect that it will be able to keep inflation low over the long run. Such low inflation expectations can help bring inflation down after a sharp spike, such as the surge in consumer prices that took place from 2021 through 2022, when inflation peaked at 9.1%. On Wednesday, the government said that figure had fallen to 2.6%.
“Despite a very large inflation shock starting in 2021, available measures of long-run inflation expectations ... increased just a bit,” Kugler said. “Anchoring of inflation expectations is one of the key elements leading to stable inflation.”