Four former heads of the Federal Reserve have warned that an erosion of the central bank’s independence will undermine financial markets and damage the economy.
In an apparent public rebuke of President Donald Trump, Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen wrote in an op-ed published by the Wall Street Journal that the US central bank must be able to make decisions “based on the best interests of the nation, not the interests of a small group of politicians.”
The former central bankers do not mention Trump by name but the president has repeatedly criticized the performance of his own appointee to the top job at the Fed, Jerome Powell. Trump has publicly called for Powell to cut interest rates, and has declined to rule out the possibility of demoting him.
“We are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons,” the former Fed chiefs wrote.
Trump named Powell, an investment banker, in late 2017 to succeed Yellen as chair of the Fed, the world’s most powerful central bank. The Fed cut interest rates last week for the first time in 11 years, a move that some economists questioned because the US economy is relatively strong and unemployment is low.
The former Fed chairs, who were appointed by both Democratic and Republican presidents, wrote Tuesday that the economy can suffer when central banks are forced to respond to short-term political considerations instead of basing their policies on economic data and long-term policy goals.
“Even the perception that monetary-policy decisions are politically motivated, or influenced by threats that policy makers won’t be able to serve out their terms of office, can undermine public confidence that the central bank is acting in the best interest of the economy,” they said. “That can lead to unstable financial markets and worse economic outcomes.”
While acknowledging that elections have consequences for who guides the nation’s monetary policy, the group expressed hopes that the next leader of the Fed would be selected using a process that minimizes political considerations.
“When the current chair’s four-year term ends, the president will have the opportunity to reappoint him or choose someone new. That nomination will have to be ratified by the Senate. We hope that when that decision is made, the choice will be based on the prospective nominee’s competence and integrity, not on political allegiance or activism,” they wrote.