President Trump has expressed his dissatisfaction about the recent Fed rate hike, Mario Draghi has given a long speech recently about central bank independence and academic experts on central banking have addressed this topic in recent blog posts.

To a certain degree, this debate is strange. After all, central bank independence has been instrumental in bringing down in the 80s and 90s inflation and inflation expectations after the 70s which had been marked by the combination of high inflation and high unemployment.

Moreover, monetary policy has been successful in ending the recession which followed the bursting of the stock market bubble in 2000 as well as bringing lasting recovery from the Great Recession which followed the housing market and leverage bubble. The current debate focuses, amongst other things, on whether unconventional policy has had distributional consequences and has increased financial stability risks but also whether there is a risk that the next recession will bring fiscal dominance whereby fiscal policy decisions end up dominating monetary policy. These discussions need to be monitored closely in view of their possible impact on inflation expectations and interest rates.

William De Vijlder


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