By Marc Jones
LONDON (Reuters) -The new head of the Bank for International Settlements on Tuesday stressed the need for central banks to focus on inflation and, amid Donald Trump’s escalating attacks on the Fed, for their independence to be protected.
Uncertainty surrounding the world’s most important monetary authority, the Federal Reserve, has risen this year as the U.S. President has repeatedly criticised its Chair Jerome Powell and on Monday announced he was firing one of its governors, Lisa Cook.
“A clear price stability mandate, independence and accountability are the anchor, hull and mast of the monetary policy vessel,” Pablo Hernandez de Cos, who in July took over as General Manager of BIS, often dubbed the central bankers’ central bank, said in a speech in Mexico.
In his first prominent speech in the new role, de Cos did not mention Trump or the Fed directly but laid out what he described as the “foundations” for central bank credibility.
Independence was vital so central bankers are able to set interest rates and use tools, such as quantitative easing, “based on economic considerations in the long-term public interest, free from short-term political interference,” the former Bank of Spain Governor said.
He said there needed to be “institutional, functional, personal and financial independence, all of which must be underpinned by a robust legal framework”.
Trump’s interventions this year, which included him calling for Powell to be replaced and questioning the central bank’s refurbishment costs, have marked an unprecedented assault on the Fed’s independence.
Monday’s proposed firing of Cook triggered a selloff in U.S. longer-term government debt on Tuesday, pushing the gap between 30-year yields and those on 2-year Treasuries to its widest in over three years. [US/]
De Cos also stressed the need for “accountability”, calling it a key counterpart to independence and the factor that “underpins the legitimacy of central bank policies.”
He pointed to how central banks had initially underestimated the post-COVID surge in inflation. That had posed a “major test” to monetary policy frameworks and their institutional pillars, de Cos said.
They have been largely successful bringing inflation back down since then with “forceful” interest rate rises, albeit after a painful cost of living shock.
He also outlined the shared challenges economies face, such as rising geopolitical tensions, debt, trade tariffs, aging populations, artificial intelligence and climate change.
