Danger ahead! Five examples of risky central bank politicisation

THERE is legitimate debate about the actual independence of modern-day central banks, but almost everyone agrees that overt politicisation of monetary policy – as we appear to be seeing in the United States – is dangerous. Why is that?

Central banks are essentially arms of government, and many worked in close conjunction with national treasuries in response to the global financial crisis and Covid-19 pandemic, so absolute independence is a bit of a myth.

But what US President Donald Trump is currently doing goes well beyond that. By threatening to fire chair Jerome Powell, actively trying to sack Governor Lisa Cook, and attempting to fill the board of governors with appointees sympathetic to his calls for lower interest rates, he is shattering the Fed’s veneer of operational independence.