'Anything that's infringing or attacking the independence of the central bank is a mess'
Chicago Federal Reserve president Austan Goolsbee issued one of the bluntest recent defenses of central bank independence, warning that political pressure on the Fed risks undoing progress on inflation and reigniting volatility for borrowers.
His comments come as markets weigh the fallout from a Justice Department subpoena to Fed chair Jerome Powell over cost overruns on the central bank’s Washington headquarters project and intensifying criticism from president Donald Trump over interest rate decisions.
“Anything that’s infringing or attacking the independence of the central bank is a mess,” Goolsbee said in a CNBC interview.
“You’re going to get inflation come roaring back if you try to take away the independence of the central bank,” he said.
Goolsbee backed Powell’s stance that investigations should not become a back door for influencing policy. “I agree with it, with his argument that if you’re investigating as a pretext because you disagree with the rate decisions, that’s a mess. We should not be in that place,” he said.
Fed independence and the mortgage backdrop
For mortgage lenders and originators, the debate goes beyond Washington process. A sustained inflation rebound would likely force term premiums higher and keep mortgage rates elevated even if the Fed tries to cut.
Officials such as Goolsbee, who dissented on a December cut, worried that easing too quickly could push term premiums and mortgage rates higher again if inflation stayed “too hot”.
Goolsbee, who previously argued for patience on cutting rates, reiterated that the central bank’s focus needs to remain on restoring price stability.
“I think the most important thing facing us is we’ve got to get inflation back to 2%,” he said.
“Rates can go down still a fair amount, with cuts even happening this year, but we have to have convincing evidence that we’re on path back to 2% inflation,” he said.
Meanwhile, instead of nudging officials toward easier policy, the probe could make the Fed more cautious about cutting rates, according to Bernard Yaros, lead US economist at Oxford Economics.
Comparisons with weaker central banks
Goolsbee also drew a sharp contrast between the United States and countries where politicised probes into central banks coincided with chronic instability.
“I know that there have been countries that had criminal investigations of their central banks, but those countries are Zimbabwe and Russia and Turkey and a bunch of places that you would not characterize as advanced economies,” he said.
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