Chief among officials’ worries is that, without independence, the faith on which central banks’ stewardship of financial markets has been painstakingly built over decades will begin to crumble, not only in the U.S. but in Europe too.
That would, in turn, erode central bankers’ ability to steer the economy and manage inflation — at a time when their credibility is already taking a beating amid deep dissatisfaction over management of the economy after the pandemic.
Independence is “paramount” for central banks’ abilities to gently steer economies away from uncontrolled price growth, and “undermining it means risk of higher future inflation, higher interest rates, and more painful cost to the society from containing inflation,” Bank of Latvia Governor Mārtiņš Kazāks said in a series of posts on X that he highlighted to POLITICO when asked about Cook.
Others expressed a similar wariness, with one Governing Council member, granted anonymity to candidly discuss the sensitive subject, fretting that a breach of the Fed’s independence could have “enormous repercussions on the financial world,” while also stressing the basic principle of due legal process that’s not been afforded to Cook.
“It’s terrible, nobody would believe us anymore if we go that route,” the official added. He compared the situation to Turkey, where President Recep Tayyip Erdoğan’s years-long encroachment into the affairs of the Turkish central bank sparked hyperinflation that’s yet to subside.
Others were more circumspect. Speaking in Berlin on Tuesday, Canadian Prime Minister Mark Carney — formerly governor of the Bank of England — shrugged off a question on Cook. “I’m confident that whatever the source of that volatility, U.S. financial stability will continue,” he told reporters. “Of course, prices will adjust to new news, so I don’t discount those changes.”