The job of a central banker between 1990 and 2008, when globalization was at its peak, was generally an easy one. Mervyn King, former head of the Bank of England, came up with a fitting acronym for it — NICE: Non-Inflationary Consistent Expansion. During this period, central banks were rarely dragged into the political spotlight, and governments knew better than to infringe upon the bankers’ sacrosanct independence. Unions had been defeated and globalization ensured that prices were relatively stable or falling across the board. This meant that combating inflation, the main aim of central banks, required little effort.
Today the political climate is very different from what it was in the immediate aftermath of the financial crisis. Immediately after taking office, Donald Trump launched a series of attacks on the Federal Reserve, repeatedly calling for its chair, Jerome Powell, to be fired. These hostilities reached their height last week, when he demanded the firing of Lisa Cook, one of the Fed’s governors.
The response to this news has been predictable. The Financial Times and Bloomberg are holding candlelight vigils for the bond market; the New York Times worries that this is the latest of Trump’s attacks on the pillars of American democracy.
But central banks have not always been independent. For much of their history, they have coordinated their actions with the government, setting interest rates in ways that would best suit the policy that specific parties had in mind. This era ended sometime in the 1970s. But what replaced it was not an empowered central bank, free from the political pressure of fickle states, but a central bank that was effectively transformed into a firefighter in an era when governments across the globe…
Auteur: Dominik A. Leusder
