Central Bank Independence Threatened by Political Interference
Amidst growing concerns over central bank independence, European Central Bank President Christine Lagarde warns that political influence could undermine the ability of these institutions to control inflation.
Lagarde's remarks come in light of U.S. President Donald Trump's recent demand for the Federal Reserve to lower interest rates. This interference has sparked debates about the true independence of central banks.
"De jure independence may be more prevalent today, but de facto independence is being questioned in several regions," Lagarde said.
The ECB is expected to cut rates this week, despite the Fed's expected hold. Lagarde claims that inflation remains subdued and suggests that Trump administration policies may even exacerbate price pressures.
Political interference, she argues, creates a "vicious circle" that can erode central bank independence. It can lead to increased exchange rate volatility, higher bond yields, and elevated risk premia.
This volatility can complicate inflation control, ultimately undermining the credibility and mandate of independent central banks. Lagarde warns that this chain of events can disrupt social consensus and amplify economic volatility.