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The IMF’s chief economist, asked yesterday about US President Donald Trump’s attacks on Federal Reserve Chair Jerome Powell, underlined the importance of preserving the independence of central banks to maintain their credibility in fighting inflation.
Pierre-Olivier Gourinchas said central banks faced a delicate moment in managing inflation, especially in countries like the US where Trump’s tariffs on imported goods are expected to stoke inflation.
“The critical thing is to make sure that inflation expectations remain anchored, that everyone remains convinced that central banks will do what is necessary to bring inflation back to central bank targets in an orderly manner,” he said.
Central banks have tools to do this, including interest rate instruments, insurance and management policy, but their credibility plays a central role, Gourinchas said.
“So central banks need to remain credible, and part of credibility is built upon their central bank independence. And so from that perspective, it is very important to preserve,” he told reporters during the Spring Meetings of the International Monetary Fund and World Bank.
Trump has criticised the Fed for not cutting interest rates quickly enough, last week saying Powell’s termination could not happen soon enough. White House economic adviser Kevin Hassett said on Friday Trump and his team were continuing to study whether they could fire Powell, while Trump on Monday said the economy could slow down unless rates were lowered immediately.
Investors said they were starting to take the possibility seriously of an attempt to dismiss Powell despite the barriers to doing so.
It is unclear whether Trump would be legally allowed to remove Powell, who is appointed by the president but confirmed by the Senate. Trump’s push to oust members of other independent agencies is before the Supreme Court.
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