ECB's Lagarde Warns Erosion of US Fed Independence Would Threaten Global Economy
Christine Lagarde says political interference with the Federal Reserve would pose a 'very serious danger' to economic stability in the United States and beyond
European Central Bank President Christine Lagarde warned that any erosion of the US Federal Reserve's independence would be a "very serious danger" to the global economy, saying political interference that forced the central bank to respond to "political diktats" would have a "very worrying" impact on economic stability.
Lagarde made the remarks in comments to the BBC, amid renewed public attacks by President Donald Trump on the Fed and its leadership. She said it would, however, be "difficult" in practice for a US president to exert direct control over the Federal Reserve's decisions.
The Federal Reserve is tasked with promoting maximum employment and stable prices in the United States and sets interest-rate policy with those objectives in mind. The institution is designed to operate independently of the US government to insulate monetary policy from short-term political pressures. Lagarde said weakening that independence would not only affect the US economy but would also ripple through global markets.
Since returning to office in January, President Trump has repeatedly criticized Fed Chair Jerome Powell and his policy decisions. Last month, Trump attempted to remove one of the Fed's governors, Lisa Cook, an action that drew attention to the legal and political limits of presidential authority over the central bank. Lagarde noted those tensions in warning of the broader consequences if the Fed were compelled to follow political directives.
Economists say central bank independence underpins credibility in controlling inflation and anchoring expectations. Market participants often interpret threats to that independence as raising the risk that monetary policy will be used for short-term political aims, which can undermine investor confidence and complicate the job of achieving price stability.
Lagarde's comments come as central banks around the world balance the twin challenges of supporting post-pandemic recoveries and managing rising price pressures. The ECB chief has previously emphasized the importance of predictable, rules-based monetary policy and of institutions maintaining public trust through operational independence.
While Lagarde stressed the practical difficulties a president would face in directing the Fed, her warning underscores the sensitivity of financial markets to any suggestion that the central bank's decisions could be subordinated to political considerations. Investors and policymakers monitor such developments closely because shifts in US monetary policy can affect global interest rates, capital flows and exchange rates.
The Federal Reserve's legal protections and governance structure provide several checks on executive influence. Removal of governors is constrained by statute, and the central bank's policymaking is conducted by the Federal Open Market Committee, which comprises the chair, governors and regional Fed presidents. How those formal protections would fare under sustained political pressure is a subject of debate among lawyers and economists.
Lagarde's intervention adds a prominent international voice to concerns expressed by market analysts, former central bankers and some lawmakers about preserving the institutional independence that many economists view as essential to effective monetary policy. She called for respect for established norms that keep monetary decisions insulated from political cycles, arguing that their disruption would pose risks not just to the United States but to the broader global economy.