By Ken Nakagawa - International Monetary Fund, CC BY-SA 4.0
The chief economist of the IMF, when questioned on Tuesday regarding U.S. President Donald Trump’s criticisms of Federal Reserve Chair Jerome Powell, emphasized the necessity of maintaining the independence of central banks to uphold their credibility in combating inflation. Pierre-Olivier Gourinchas noted that central banks are currently navigating a challenging period in managing inflation, particularly in nations such as the United States, where Trump’s tariffs on imports are anticipated to exacerbate inflationary pressures.
He stated, ‘The essential factor is to ensure that inflation expectations remain stable, and that there is a collective belief that central banks will take the necessary actions to return inflation to their target levels in a systematic manner.’ Gourinchas highlighted that central banks possess various tools to achieve this, including interest rate adjustments, insurance, and management policies, but their credibility is crucial. ‘Thus, it is imperative for central banks to maintain their credibility, which is significantly derived from their independence. Therefore, it is vital to safeguard this independence,’ he conveyed to reporters during the Spring Meetings of the International Monetary Fund and World Bank.
Trump has previously criticized the Federal Reserve for its perceived sluggishness in reducing interest rates, recently stating that Powell’s dismissal could not come soon enough. White House economic adviser Kevin Hassett mentioned on Friday that Trump and his team were still evaluating the possibility of terminating Powell, while Trump remarked on Monday that the economy might decelerate unless interest rates were reduced without delay.
Investors have begun to seriously consider the potential for an effort to remove Powell, despite the challenges associated with such a move. It remains uncertain whether Trump possesses the legal authority to dismiss Powell, who is appointed by the president but requires Senate confirmation. Trump’s attempts to remove officials from other independent agencies are currently under review by the Supreme Court. His ongoing criticism of the Federal Reserve and its chair has unsettled the markets, leading to a decline in U.S. stock prices on Monday, although there was a partial recovery on Tuesday as investors shifted their attention to corporate earnings.
In an interview European Central Bank President Christine Lagarde expressed her support for Powell, whose term as chair concludes in May 2026. ‘We are both accustomed to political pressure in various forms. However, I have great respect for his work and his commitment to fulfilling his responsibilities diligently and with discipline. For him, as for me, our mandate serves as our guiding principle. We must adhere to our mandate,’ Lagarde stated. When asked if a White House effort to remove Powell would significantly impact the markets, Lagarde responded, ‘I will refrain from commenting on market reactions to hypothetical situations that I sincerely hope are not being considered.’
