Odd Lots Why the Damage to Fed Independence May Have Already Been Done
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Jul 19, 2025 
In this conversation, Carola Binder, an economics professor at the University of Texas-Austin specializing in central bank independence, discusses the increasing political pressures on the Federal Reserve. She highlights how the criticisms have escalated under President Trump, questioning the Fed's autonomy. Binder elaborates on the potential inflationary effects of mere criticism and examines whether the independence of the Fed has been irreversibly compromised. She reflects on the historical significance of the Fed's authority and its implications for future economic stability.
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Pressure on Central Banks Raises Inflation
- Political pressure on central banks often leads to inflation, whether the banks yield or resist.
- Inflation expectations rise as people worry central banks might succumb to pressure.
Why Independent Central Banks Matter
- Elected politicians tend to favor easier monetary policy to win elections, causing inflation bias.
- Independent central banks counteract this bias by focusing on price stability over short-term popularity.
Trump’s Open Fed Pressure Is New
- The major change under Trump is the public, direct pressure on the Fed, unlike past subtle approaches.
- This public tension divides opinions and erodes the Fed’s perceived independence.