When politics dictates interest rates: the Federal Reserve's independence under stress testing

The independence of central banks has been regarded for decades as a crucial guarantee for appropriate price development and economic reliability. However, in the USA, this principle is increasingly coming under pressure. Donald Trump is attempting to exert direct influence on the Federal Reserve and to fill key positions with loyalists. As a result, the Fed faces a potential politicisation that could have far-reaching consequences. A particularly critical scenario would be one in which the US economy slips into stagflation, characterised by stagnant growth alongside high inflation. If the Fed were politically compelled to keep interest rates low in such a situation, an inflationary spiral, breaches of trust in the financial markets, and rising financing costs could ensue despite low key interest rates. The coming months could therefore be pivotal in determining whether the Federal Reserve maintains its role as an independent anchor of stability.

When politics dictates interest rates: the Federal Reserve's independence under stress testing(PDF, 270 KB, accessible)