Central Bank independence in United States

CNBC: Federal Reserve fends off efforts to be politicized by President Trump, for now

Article published: May 2, 2019

IB Economics syllabus: Macroeconomics (central bank independence, monetary policy)

NOTE: I don’t recommend this as an IB economics commentary article as it is too long, and there is no specific policy action discussed, but it is a great one about the importance of central bank independence – and as such serves as a great real-world example when it comes to your Paper 1 macroeconomics essay answers evaluating monetary policy.

Why is this article useful?

When you check out the IB Economics guide, it clearly states in the evaluation of monetary policy part of the syllabus content (top of p. 55) that the independence of the central bank (from the government) is an important advantage of monetary policy. It is not otherwise in the United States, where the President has a different view of how monetary policy should be carried out. It’s worth to note, that in an exam situation (when evaluating monetary policy) you should also mention that there might be a “conflict among government economic objectives” – this is also taken from the guide.

This article is a good example of this and – for now – the good news is that the Fed (central bank of the US) can preserve its independency from the White House (US government). It is stated that “Federal Reserve Chairman Jerome Powell has made clear the Fed will not bend to the will of President Donald Trump, and so far the central bank appears to be winning.”

Source of image: Andrew Harrer | Bloomberg | Getty Images

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