Fed officials stress independence as rate hold signals mount

[NEW YORK] A slew of US Federal Reserve officials spoke to the importance of central bank independence on Wednesday (Jan 14) in response to questions about the news that the US Department of Justice (DOJ) issued subpoenas to the Fed focused on a costly building renovation and Fed chair Jerome Powell’s congressional testimony last year about the project.

Among those, Minneapolis Fed president Neel Kashkari became the first policymaker to explicitly back Powell’s counterclaim that the DOJ’s investigation was a pretext for putting more pressure on the central bank on interest rates.

“The escalation over the course of the past year is really about monetary policy,” Kashkari said.

At an event hosted by the Wisconsin Bankers Association, Kashkari suggested the Fed’s independence on monetary policy would remain protected even after US President Donald Trump replaces Powell, whose term as chair ends in May.

“That person gets one vote and the best argument wins,” he said. “I feel confident that the committee will continue to make the best decisions we can, based on data and analysis.”

Chicago Fed president Austan Goolsbee and Atlanta’s Raphael Bostic also extolled the importance of the Fed’s ability to set rates free of political interference, as did New York Fed president John Williams on Monday.

“The independence of the Fed couldn’t be more important for the long-run inflation rate in this country,” Goolsbee said on Wednesday.

Fed governor Stephen Miran, who is on unpaid leave as one of President Donald Trump’s top White House economic advisers, took a different tack when asked about the DOJ probe and about claims that it might undermine confidence that the Fed will remain committed to holding down inflation.

“I don’t really buy that. I think that inflation is very much headed in the right direction,” Miran said at an event in Athens. “Inflation’s on the right trajectory. It’s coming down. The mechanics of all the components are in the right place. And you know, this other stuff is just noise.”

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Miran also took issue with a statement issued by a host of global central bank heads expressing “full solidarity” with Powell in fighting the investigation.

“I don’t think it’s appropriate for central bankers to get involved in non-monetary policy issues in their own country, and I think it’s even less appropriate in other countries,” he said.

Economic outlook

In their commentary on the economy, the same group of policymakers, excepting Miran, signalled they are unlikely to support another rate cut when officials gather later this month. Kashkari was, again, the most direct.

In his interview with The New York Times, he said that rates should remain unchanged at the Fed’s Jan 27 to 28 meeting. Kashkari, who votes on interest rates this year, cited a resilient economy and concern over still-elevated inflation as reasons not to cut rates more right now. He added there could be a reason to cut later in the year.

Fed officials cut rates at each of the last three meetings of 2025, but divisions over whether to keep lowering them grew as the year came to a close. Most market participants do not see another cut until June.

Kashkari’s views were largely in line with comments from Philadelphia Fed president Anna Paulson, who said she was cautiously optimistic inflation would return close to the Fed’s 2 per cent target by the end of 2026.

“I see inflation moderating, the labour market stabilising and growth coming in around 2 per cent this year. If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year,” she told the Chamber of Commerce for Greater Philadelphia.

Speaking separately in Atlanta, Bostic said interest rates should remain at a restrictive level that weighs on the economy because policymakers have more work to do on inflation.

“We haven’t been to target for inflation for many, many years now. We still sit quite far from where we need to be,” Bostic said.

The trio are among several policymakers who have since the central bank’s December meeting, signalled a preference to hold rates steady for some time to get a clearer read of the economic outlook.

Miran continued to call for aggressive rate cuts, as he has since his appointment in September. He has called on the central bank to lower its benchmark rate by one and a half percentage points this year. On Wednesday, he argued the administration’s deregulatory agenda was likely to boost economic growth without additional price pressures, providing another justification for rate cuts. BLOOMBERG