Mario Draghi, President of the European Central Bank expressed concern today regarding the independence of the U.S. Federal Reserve. He warned that a loss of the autonomy of the Federal Reserve could undermine the credibility of its policy.
“I’m certainly worried about central bank independence in other countries, especially in the most important jurisdiction in the world,” Draghi said about the United States.
This criticism aims clearly at U.S. President’s Donald Trump’s nomination of controversial candidates Herman Cain and Stephen Moore to the board of the U.S. Federal Reserve and the President’s persistent suggestions for rate cuts. Critics argue that this interference challenges the very foundation of modern central banking.
“Within their mandate, however, central banks ought to be left free to choose what’s the best way to comply with the mandate,” Draghi said. “Because if you don’t let them be free, then they’re not accountable. That’s the central banking framework since the 80s everywhere.”
“If the central bank is not independent, then people may well think that monetary policy decisions follow political advice rather than objective assessment of the economic outlook,” Draghi told a news conference.
These statements come as governments including Turkey, India and the United States put increasing pressure on their central banks in recent months.
Others argue, however, that this is not a new phenomenon and is to be expected dependent on the situation. “This is nothing new with governments trying to jaw-bone central banks. But central banks in most countries are and have to be, independent so that they can deal with growth of an economy or heating up of economy, as the case may be, and managing inflation”, Henry R. Kravis (co-chairman and co-CEO of private equity giant KKR) told a select group of journalists December in Mumbai.
Still, Draghi contends that he sees no similar threat to the ECB’s independence considering the legal safeguards, and he also did not think the incidences of interference elsewhere were undermining global confidence.