Central bankers fear the war for independence is already lost

Their words create trillion-dollar swings in markets; their actions can determine the fates of nations. But among the central bankers who gathered in Jackson Hole, Wyo., in recent days, there was a palpable sense that their moment at the helm of the world economy may have passed. The big picture: Bedrock concepts that economists hold dear — of central bank independence, reliable data collection, and technocratic decision-making — are under threat in ways that have left the global central banking community discombobulated.In formal proceedings at the Kansas City Fed's annual economic symposium this weekend, there were only the subtlest of references to the Trump administration's actions that throw Federal Reserve independence and government economic data into doubt.But in whispered private conversations against the stunning backdrop of the Grand Tetons, there was melancholy — a fear that the war for empiricism and independence may already be lost.And there was no shortage of gallows humor about the finer points of the Federal Reserve Act — specifically, what it says about which high officials can be fired, when, and for what.State of play: President Trump has pilloried Fed chair Jerome Powell for months, and last week, his top housing regulator announced an out-of-nowhere criminal referral of Fed governor Lisa Cook— a Biden appointee whose term runs until 2038 — for alleged mortgage fraud.Trump threatened to fire her Friday morning just as Chair Jerome Powell took to a lectern beneath elk antler chandeliers to deliver what was almost certainly his final Jackson Hole address.Trump has nominated as a Fed governor White House economist Stephen Miran, who has previously argued that the president should have more direct control over the central bank.Trump fired the commissioner of the Bureau of Labor Statistics this month after a weak report, and has nominated a replacement whom many economists view as partisan and under-qualified.Between the lines: This has all made for a sense that U.S. economic policymaking is shifting toward something more overtly partisan and less technically rigorous than has been seen in modern times.The emerging market central bankers who attend the symposium hoping to make their countries' economic governance more like the U.S. instead see the U.S. becoming more like them.What they're saying: "The technocrats of the world look at this and are agog," Adam Posen, president of the Peterson Institute for International Economics, tells Axios."To central bankers and finance ministers around the world, Fed independence was an example and a lodestar for them for decades," he said. "Central banks around the world moved to being independent partly on the Fed model.""Bureaucracies around the world improved their data and their transparency and professionalism, their belief in science and evidence-based thinking, on the American model," Posen, a former Bank of England official, said.Reality check: Central bankers have made policy mistakes and expanded into areas outside their core expertise in ways that contributed to their current political vulnerability.The Fed was late to act to try to head off the inflation that exploded in 2021 and 2022, likely necessitating steeper and more painful interest rate hikes to bring inflation down.Regional Fed banks have pursued research on climate, race, and other areas outside their core monetary policy focus, angering conservatives."President Trump's approach to the Fed has been outrageous," Michael Strain with the American Enterprise Institute tells Axios. "But central bankers need to think hard about the extent to which they have threatened their own independence through mission creep and an absence of viewpoint diversity." Of note: At the Jackson Hole symposium, Emi Nakamura from the University of California-Berkeley presented a paper showing that central banks that were late to raise rates in the 2021-2022 inflation surge nonetheless were successful bringing inflation down, arguing it was because they had credibility.She said that their success depended on "a strong reputation for inflation fighting and anchored inflation expectations," which in turn depends on "institutions like central bank independence and a strong track record.""Those are things that take a long time to build up and perhaps not very long to destroy," Nakamura said.

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