The fate of Lisa Cook, who fights the attempts of President Donald Trump to dismiss her from the Board of Governors of the Federal Reserve (FED), has enormous implications for a fundamental pillar of the good economic policy: the independence of the Central Bank.
In the center of its attempt to dismiss, and other measures of the Trump administration to weaken the Fed, there is a power struggle. The central banks, public institutions that manage the currency and monetary policy of a country, have extraordinary power. By controlling the flow of money and credit in a country, they can affect economic growth, inflation, employment and financial stability.
These are powers that many politicians would like to control or, at least, manipulate. This is because monetary policy can provide governments with economic impulses at key moments, as in the proximity of elections or during periods of popularity fall.
The problem is that ephemeral measures, with political motivations, can be harmful to the long -term economic well -being of a nation. In other words, they can load the economy with long -term problems.
That is why central banks around the world usually have a considerable margin to fix interest rates independently and outside the electoral preferences of politicians.
In fact, the formulation of monetary policies based on data and technocratic, instead of politically motivated, was considered since the early 1990s the reference model for the governance of national finances and largely achieved its main objective of maintaining relatively low and stable inflation.
But although it is considered that independence works, the central banks were subjected to growing political pressure during the last decade.
Trump is a recent example. In his first term, he criticized his own decision to direct the United States Federal Reserve and demanded lower interest rates.
The attacks on the Fed intensified during the second Trump administration, because in April 2025, Trump lashed out at the president of the agency, Jerome Powell, in an online publication, accusing him of having arrived “too late and wrong” in terms of trimming of interest rates, while suggested that the exit of the central banker “could not be faster.”
Unable to force Powell’s departure, Trump brought the struggle of power to a critical point with the dismissal of Cook, supposedly for accusations that the governor of the Fed falsified records in a mortgage application. Cook declared that the president does not have the foundations or authority to fire her.
As political economists, we are not surprised to see politicians trying to influence central banks. To begin with, the central banks continue to be part of the government bureaucracy, and the independence that is granted can always be reversed, either by modifying laws or retracting the established practices.
In addition, the reason why politicians could want to interfere with monetary policy is that low interest rates remain a powerful and fast method to boost the economy. And while politicians know that besieging an independent central bank has its costs (financial markets can react negatively or inflation can be shot), short -term control of a powerful political tool can be irresistible.
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Legislating independence
If monetary policy is such a coveted political tool, how did central banks contain politicians and stay independent? Is this independence eroding? In general, central banks are protected by laws that grant long mandates to their leaders, allow them to focus their policies mainly on inflation and severely limit loans to the rest of the government.
Of course, this legislation cannot anticipate all future contingencies, which can lead to political or practical interference that violates the law. And sometimes the central bankers are fired without contemplations.
However, the laws keep politicians at bay. For example, even in authoritarian countries, the laws that protect the central banks of political interference helped reduce inflation and restricted the loans of the central bank to the government.
In our own investigation, we have detailed the ways in which the laws isolated the central banks of the rest of the government, but also the recent tendency to erode this legal independence.
Appointment politicization
Worldwide, appointments for the direction of central banks are politicians: elected politicians select candidates based on their professional trajectories, their political affiliation and, fundamentally, their rejection or tolerance to inflation.
However, legislators in each country exercise different degrees of political control.
A 2025 study shows that the vast majority of the leaders of the central banks (around 70%) are appointed by the head of government alone or with the intervention of other members of the Executive Power. This guarantees that the preferences of the Central Bank are closer to those of the Government, which can reinforce the legitimacy of the Central Bank in democratic countries, but with the risk of being permeable to political influence.
On the other hand, appointments can involve legislative power or even the Board of Directors of the Central Bank itself. In the United States, while the president pays for the members of the Board of the Federal Reserve, the Senate can, and in fact has done so, reject unconventional or incompetent candidates.
In addition, even if the appointments are political, many central bankers remain in office long after those who appointed them have been dismissed. By the end of 2023, the most common duration of the appointment of the governors was five years, and in 41 countries the legal mandate was six years or more. Powell will remain as president of the Fed until his mandate expires in 2026. The position of president of the FED has traditionally been protected by law, as Powell himself recognized in November 2024: “We are not dismissed except for just cause. We fulfill very long, apparently endless mandates. So we are protected by law. Congress could change that law, but I do not believe that there is no danger.”
In the 2000s, several countries reduced the mandate of the governors of their central banks to four or five years. Sometimes, this was part of broader restrictions on the independence of central banks, as in the case of Iceland in 2001, Ghana in 2002 and Romania in 2004.
The objective of low inflation
In 2023, all central banks worldwide, except six, had the main objective of low inflation. However, many central banks are obliged by law to try to achieve additional objectives, sometimes contradictory, such as financial stability, full employment or support for government policies.
This is the case of 38 central banks that have the explicit double mandate of price stability and employment, or more complex objectives. In Argentina, for example, the mandate of the Central Bank is to promote employment and economic development with social equity.
The opposite objectives can expose the central banks to politicization. In the United States, Fed has a double mandate: stable prices and maximum sustainable employment. These objectives are usually complementary, and economists have argued that low inflation is a previous requirement for high and sustainable employment levels.
But in times of high inflation and high overlapping unemployment, as in the late 1970s or when the Covid-19 crisis was appeased in 2022, the double mandate of the Fed has become a fertile terrain for political disputes.
Since 2000, at least 23 countries expanded the focus of their central banks beyond inflation.
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Limits to government loans
The first central banks were created to help ensure the financing of governments in wars. But today, limiting loans to governments is essential to protect price stability against unsustainable fiscal expense.
The story is full of consequences of not doing so. In the 1960s and 1970s, for example, Latin America central banks printed money to support the spending objectives of their governments. However, this resulted in mass inflation, without ensuring growth or political stability.
Today, credit limits are strongly associated with lower inflation in developing countries. And central banks with high levels of independence can reject the financing requests of a government or dictate the conditions of the loans.
However, in the last two decades, almost 40 countries have reduced the capacity of their central banks to limit the financing of the central government. In the most extreme examples, as in Belarus, Ecuador or even New Zealand, they have made the Central Bank a possible government financier.
Scapegoats of central bankers
In recent years, governments tried to influence central banks by pressing to lower interest rates, issuing statements that criticize bank policy or calling meetings with the leaders of the Central Bank.
At the same time, politicians blamed the same central bankers of a series of perceived deficiencies: not anticipate economic shocks such as the financial crisis of 2007-2009; Exceed your authority with quantitative flexibility; or create an inequality or massive instability when trying to save the financial sector.
And since mid -2021, the main central banks have had difficulties in maintaining low inflation, which has raised doubts between populist and antidemocratic politicians about the advantages of an equal relationship.
But undermine the independence of the central banks, as Trump seems to be doing with their criticisms open to the president of the Federal Reserve and the dismissal of a member of the Bank of Governors of the Bank, it is historically a safe route towards high inflation.
*Ana Carolina Garriga She is a professor of the Government Department, University of Essex; Cristina Bodea She is a Professor of Political Science, Michigan State University.
This text was originally published in The Conversation
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