European Central Bank President Mario Draghi expressed concern on Saturday about the U.S. Federal Reserve’s independence, warning that a loss of its autonomy could undermine the credibility of policy.
U.S. President Donald Trump’s nomination of two controversial candidates to the Fed’s board and persistent calls for rate cuts has raised the specter of government interference, challenging a fundamental tenet of modern central banking.
“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.
“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,” he told a news conference.
Governments from Turkey to India and the United States have put increasing pressure on their central banks in recent months, igniting a debate about the value of independence.
But some argue that unconventional policy, used widely now, redistributes wealth, so monetary policy makes increasingly political decisions and thus requires increased political scrutiny.
“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.”
Still, Draghi argued that he saw no similar threat to the ECB’s independence given the legal safeguards and he also did not think that cases of interference elsewhere were undermining global confidence.
Reporting by Balazs Koranyi; Editing by Paul Simao and Andrea Ricci