US Biden administration says it supports an independent Fed

By Thomson Reuters May 22, 2024 | 7:28 PM

SAN FRANCISCO (Reuters) – The Biden administration asserted its support for an independent Federal Reserve on Wednesday, after a report surfaced last month that Republican presidential candidate Donald Trump is assessing ways to exercise more control over U.S. monetary policy.

In a blog post published Wednesday, the White House Council for Economic Advisors laid out the historical evidence that central banks beholden to politicians serve their economies poorly, and that independent central banks do better at controlling inflation.

“We in the Biden administration are highly motivated by this history and will continue our unwavering support for CBI (central bank independence),” the CEA blog said. “History could not be clearer regarding the lasting and damaging inflationary consequences of ignoring this lesson or reversing the hard-earned progress of the past half century.”

It’s a view widely accepted by economists, stated before by CEA chair Jared Bernstein and regularly emphasized by Fed policymakers themselves, including Fed Chair Jerome Powell, who along with leaders at most global central banks has been waging an inflation-fighting campaign for more than two years.

During his 2016-2020 term as president, Trump elevated Powell to the top post at the Fed, but later expressed anger and frustration that the central bank did not reduce interest rates to boost the economy when he felt it should.

Trump has taken aim at U.S. President Joe Biden, who is running against the former Republican president for reelection in November, for allowing inflation to remain high, and has said he believes Powell will reduce interest rates to help Biden’s reelection bid.

U.S. inflation peaked in mid-2022 at about 7% and has since fallen to about half that, but the Fed targets 2% and policymakers have said they won’t cut rates until they have greater confidence inflation is headed to that goal.

The CEA blog credits the Fed’s independence with its ability to bring inflation down as far as it has without doing much damage to the labor market.

(Reporting by Ann Saphir; editing by Diane Craft)