The Fed defends its independence

Over the past three decades, it seemed that the debate on monetary policy independence had been settled.  However, growing pressure on the US central bank is reopening it. That is why Jerome Powell, Chairman of the Fed, decided this week to release a short but politically very significant video message in which he clearly distanced himself from efforts to limit the independence of central banks. His speech did not come across as an academic reflection on institutional design, but as a conscious entry into the public debate at a time when the issue of monetary policy independence is once again the subject of political pressure.

The Fed Chairman pointed out that central bank independence is not an end in itself, a privilege of technocrats, but a tool for protecting long-term price stability from short-term political interests. According to him, the ability to make unpopular decisions, especially in periods of high inflation, is key to public confidence in the monetary regime. Historical experience shows that weakening this independence typically leads to higher inflation, greater macroeconomic volatility and, ultimately, higher social costs.

His speech was immediately followed by responses from a number of other central banks, which openly declared their support for institutional autonomy. Support came not only from advanced economies, but also from emerging countries, where the credibility of monetary policy is often even more fragile. The statement by the International Monetary Fund, which has long considered independent central banks to be one of the fundamental pillars of macroeconomic stability, was also symbolically significant.

The whole episode shows that the debate on central bank independence is far from being a closed chapter of the 1990s, but rather a lively political and economic conflict. In an environment of high inflation, high public debt, and growing polarization, there is a renewed temptation to subordinate monetary policy to current political priorities. This is precisely why Jerome Powell's speech has broader significance: it is a reminder that confidence in the currency and economic stability rests on institutions whose weakening may seem attractive in the short term, but almost always proves to be a costly mistake in the long term.