It’s not just the Fed. Politics looms over central banks everywhere

Subscribe to enjoy similar stories. THE IDEA that central banks should enjoy some independence is as old as central banking. “I want [it] to be sufficiently in the hands of the government, but not too much," mused Napoleon Bonaparte in 1806 of the recently created Bank of France.

Try telling that to President Donald Trump. He has spent the past year bullying the Federal Reserve to cut interest rates faster. The campaign escalated on January 11th, when Jerome Powell, the Fed’s chair, said the Department of Justice had served the central bank with subpoenas.

Mr Powell said he is now under threat of a criminal indictment relating to a long-running spat over the cost of renovating the central bank’s headquarters. The Trump administration’s actions are the most striking assault on the independence of central banks in decades, in part because the Fed is the most important central bank. But it is not just in America that politicians are encroaching on monetary policy.

Around the world, a decades-old arrangement that has, on the whole, brought lower inflation and greater economic stability can no longer be taken for granted. The modern version of central-bank independence emerged after the second world war. The “Treasury-Fed accord" of 1951 liberated America’s central bank from having to keep down the government’s borrowing costs, as it had done during the war.

In Germany, the Bundesbank was granted latitude to keep inflation at bay and avoid a repeat of the Weimar currency debasement in the 1920s. Its comparative success during the 1970s made it a model for the rest of the continent. The movement gained traction in the 1980s as theoretical and empirical research built the case for independence.