Fed chair urged to uphold independence amid political pressures: deVere CEO

Investing.com -- Jay Powell, the Chair of the Federal Reserve, is being urged to make a strong stand for the bank’s independence during his upcoming testimony before Congress. The warning comes from deVere Group, a leading global financial advisory organization.

Nigel Green, the CEO of deVere Group, has expressed that markets and investors need clear assurance from Powell that the Federal Reserve will not succumb to political pressure. According to Green, if the Federal Reserve is perceived to be losing its autonomy, it could lead to increased market volatility, capital flight, and a weakened dollar.

Powell’s testimony is expected at a time when the relationship between President Donald Trump’s administration and the central bank is under close scrutiny. Past disagreements between Powell and Trump over rate decisions, as well as the potential for direct intervention, have sparked investor worries.

Green continued to emphasize that the Federal Reserve’s main mandates, which include price stability and maximum employment, necessitate long-term, data-driven decision-making that is free from political interference. He warned that a politically compromised Federal Reserve could lead to higher inflation, asset bubbles, and long-term economic instability.

The ability of the Federal Reserve to independently set interest rates is crucial for investor confidence. Negative reactions in the markets can occur when monetary policy seems to be influenced by political considerations, rather than economic fundamentals.

Green warned that severe consequences could follow if investors start to believe that the Federal Reserve is no longer operating independently. These could include a spike in bond yields, increased risk premiums on US assets, and heightened global market uncertainty.

During his first term, Powell successfully resisted political pressure from Trump, refusing to further cut rates in 2019. With Trump now serving a second term, investors are seeking reassurances that Powell will continue to defend the Federal Reserve’s autonomy, despite the mounting political pressure.

Historically, financial markets are highly sensitive to perceived political interference in central bank policy. When governments attempt to manipulate monetary policy for short-term political gains, the results can often be disastrous. Loss of investor confidence, hyperinflation, and unsustainable credit booms are common outcomes when central banks lack independence.

Green noted that the role of the US dollar as the world’s primary reserve currency is based on trust in the Federal Reserve’s ability to make independent, sound decisions. Any erosion of that trust could have significant domestic and global consequences, affecting trade, capital flows, and geopolitical stability.

Inflation is currently still running above the Federal Reserve’s 2% target, making the central bank’s policy decisions over the coming months critical. Green concluded by reiterating that an independent Federal Reserve is a cornerstone of economic stability and expressed hope that Powell will make a clear and forceful statement that the Federal Reserve will not be swayed by short-term political pressures.

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