The insidious threats to central bank independence

“JUST kick ’em up the rump a little.” That was how US President Richard Nixon advised Federal Reserve chairman Arthur Burns to persuade the rest of the central bank’s board to cut interest rates in 1971.

Kicked or not, the central bankers complied. Cuts helped Nixon to re-election by boosting employment. They also contributed to double-digit inflation that would not be decisively tamed until Paul Volcker ran the Fed in the 1980s.

On Dec 14, the Fed raised interest rates by another 0.5 percentage point; the European Central Bank (ECB) and the Bank of England (BOE) were expected to follow suit shortly after. Technocrats have spent the decades since Burns making Nixon-like meddling more difficult. An academic cottage industry is devoted to numerating and ranking central bankers’ independence. In 2020, there were more than 150 central banks classed as independent by the BOE’s count – some 90 more than in the 1970s. The ECB’s autonomy is guaranteed by treaty.