Goldman Sachs warns of economic repercussions when undermining the independence of the central bank

A new report issued by economists in Goldman Sachs studied the dangers of undermining the independence of central banks to devote monetary policy from political intervention.

The report concluded that it could lead to high inflation, reduce stock prices and the weakest of the currency.

Economists in Goldman Sachs, led by Jean Hatzius, examined studies related to the independence of central banks around the world and found: “Economists are widely agreed that the most independent political central banks are more able to balance their goals of maintaining low and stable prices while maintaining economic production near the full capabilities.”

Among the risks posed by the independence of the central banks that were observed in the report is the general political pressure, which “can eat the public’s perception of the independence of American monetary policy.” Other risks include legal changes that allow the removal of federal reserve officials, in addition to an actual effort to remove the Federal Reserve Chairman Jerome Powell Or other federal reserve officials, despite his recent threats to do so.

The report comes in the middle of the president Donald Trump Constant criticism of the height. The President has repeatedly called for low interest rates, during his first term and in recent months. He also threatened to dismiss Powell on several occasions, although he said since that he would not try to remove the Federal Reserve. There are questions about whether he has the legal authority to do so.

Trump comes out of Powell from the cutting block: Why does markets concern

Last month, the president wrote in a social media post that “the end of Powell cannot come quickly” and that the Federal Reserve Chair “is always late and a mistake.” He also urged Powell to go foot Selling market Amid the broader uncertainty of commercial policy.

Later on the threat of Powell’s launch, and reporters told that “there is no intention to launch it.” After the federal reserve decision Fixed price contract To hold a third consecutive meeting in May, Trump wrote in a social media post that Powell “is a fool, has no idea. Otherwise, I love him so much!”

Trump criticizes Jerome Powell in the name of “Al -Sayed.

The report clarified that under the current law, Federal Reserve The chair can only be removed “for the reason” and that Powell said in press conferences when he was asked about his job security that the president who removes him “is not allowed under the law.” This precedent also protects the rulers of the regional banks of the Federal Reserve.

However, note that there is uncertainty about how to involve other suspended court cases Independent federal agencies It can affect the federal reserve, which may affect the independence of the central bank.

“Through the countries, the institutional changes that increased the independence of the central bank-including the process of appointing and removing officials-reduced inflation by ½-1 (percentage) in the following years, indicating it indicates The cost of inflation If such protection is reversed (even if it is not disposed of), “economists wrote.

Trump calls Fed’s power

The report also indicated that the non -scheduled leadership changes in global central banks were historically linked to an increase in inflation after the overthrow of the leader.

“These results are consistent with a direction with market reactions to President Trump’s comments on the possibilities of President Powell’s removal in recent weeks,” economists wrote. “Financial circumstances are tightened, stock evaluations decreased, and the US dollar weakened after President Trump raised the possibility of President Powell on April 18, but these moves reflect later after President Trump retreated his comments on April 22.”

the Goldman Sachs The analysis showed that the bulk of institutional changes in monetary policy in advanced economies “were in the direction of greater independence, while the changes in the direction of low independence have mostly occurred in the emerging economies.”

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Therefore, our evidence is indirectly, and our quantitative estimates should be settled to assess the risks to the independence of monetary policy in the United States with great caution. The stability of the financial market“Continue.

“However, the evidence available from the global central banks indicates that the shift towards the federal, less independent federal reserves is likely to lead to the pressure of bullish inflation, low stock prices, and a weaker coin.”