Loss of central bank independence could lead to instability, the IMF warns
By Andrea Sharall
(Reuters) – The International Monetary Fund on Tuesday warned that loss of central bank independence could undermine efforts to curb inflation expectations.
The IMF hammered its message in an update to the global economic outlook released Tuesday and in another interview with IMF chief economist Pierre-Olivier Gourinchas.
In the update, the IMF said the current economic tension and the economic situation of evolving uncertainty over tariffs will increase the need for robust policies to protect financial stability and ensure central bank independence.
In some cases, he said it may be appropriate for the country to implement temporary foreign exchange interventions or capital flow management measures if the tariff impacts result in a destructive move in foreign exchange and risk premiums.
“Importantly, ambiguous and unstable landscapes require clear and consistent messaging from central banks, not just legal terms but also indeed, as well as protection of central banks’ independence,” the global lender said.
President Donald Trump repeatedly recommended the US Federal Reserve to cut interest rates, questioning leadership.
There is a market that is volatile for these statements, worrying that long-standing principles of Fed Independence will be lost.
The two men were on the verge of a cost overrun on the Fed’s renovation project on Friday.
Asked about Trump’s efforts to drive Powell out of his job, Goolingchas highlighted the importance of maintaining central bank independence to lock inflation expectations.
“This is the core plank of the overall macroeconomic stability. This is one of the tough lessons of the past 40 years,” the IMF chief economist told Reuters in an interview without specifically mentioning the Fed.
“There’s a very clear message about this. It’s very important to maintain the independence of the central bank and implement it,” he said.
Central bank independence, he said, was the basis for the macroeconomic framework in both developed and emerging economies.
Despite a period of significant price increases between 2021 and 2024, markets and consumers maintained confidence in policymakers’ resolve to curb inflation in the medium term, avoiding widespread slashing of inflation expectations.