Trump and Turkey Threaten Heyday of Central Bank Independence

Manual Interest rate targeting doesn’t work. It has delay harmonics for starters, doesn’t get rid of unemployment over the cycle and the people making the decisions won’t make the hard choices when needed any more than politicians will.

Note that the U.S. has a complex Federal Reserve governance system with mixed public/private control. The direct political appointees (Board of Governors) serve 14-year terms, spanning more than a single presidency, and requiring Senate approval. The Federal Reserve Bank presidents are elected by boards of directors representing mixed (as required by statue) sectors of the economy. There are far too many moving parts and diverse interests (including direct financial stakes in the long-term stability of the economy) for the system to be reliably partisan or political, at least in a way that would cause the FOMC (the group that sets target interest rates) to strategically favor or disfavor any particular administration.

If you want to see real booms and busts, look at countries where monetary policy is more directly controlled by elected leaders.

Indeed, one reason we're hearing a lot about central banks is precisely because they're not strongly partisan and can't be easily lobbied. What we've been hearing for a few years is a debate that has been deliberately made public not to influence central bank policies but to influence and cajole legislatures into changing the governance structure of central banks, particularly the US Federal Reserve and the ECB. In particular, there are growing movements to give politicians more direct control over central banks precisely in the hope of achieving greater partisan control over policy.

Note that one of the first "reports" cited in that article is from Pimco. Pimco has historically invested heavily in the bond market, so Pimco would naturally prefer interest rates to rise. In the U.S. it's principally Republicans who have sought (since 2008) to make the central bank more partisan, and in a weird twist of history Republicans would now very much like to preserve low interest rates. That puts Pimco firmly in the camp wishing to preserve central bank independence, so of course they're going to make a lot of noise about a looming political takeover of the Federal Reserve.

I happen to agree with Pimco that independence should be preserved, but it wasn't too long ago that Pimco was tacitly supporting efforts by Republicans to reform the Federal Reserve, back when the Federal Reserve was lowering rates and Republicans disfavored loose monetary policy.