Fed’s Bostic: Political battles over Fed are undermining public trust

By Howard Schneider

WASHINGTON, Feb 25 (Reuters) – Outgoing Atlanta Federal Reserve President Raphael Bostic said on Wednesday that the political battles around the Fed are undermining public confidence in the central bank’s independence, a “major concern” he said cuts to the heart of U.S. economic performance and the country’s standing in the global economy.

Due to finish his term on Friday, Bostic used an essay on the eve of his departure, cast largely as a farewell letter, to warn that U.S. economic strength and standing as a global safe haven “is not guaranteed. Safeguarding our special status includes protecting the Fed’s independence.”

His comments come a day after President Donald Trump trumpeted U.S. economic performance in his State of the Union speech but amid broader debate about whether the administration’s tariff, immigration and other policies are eroding the country’s status or could, over time, endanger the dollar’s role as the global reserve currency. 

Central bank independence coupled with a commitment to a low-inflation target are policies shared across developed and many developing countries.

“My travels over the past several months have made clear that the legal and rhetorical battles raging around the central bank right now have caused people across a wide cross-section of our population to begin to doubt the Fed’s independence,” Bostic wrote.

“It’s important that the public understand what is at stake. Decades of lived experience, as well as a large body of academic research, make clear that a nation’s economic outcomes are better when there is an independent central bank. Inflation is lower, economic performance is more robust, and consumers and businesses alike are more confident that long-run investments will be worth making.”

Though his letter did not mention President Donald Trump or the Trump administration by name, the “legal and rhetorical battles” have included efforts by the president to fire Fed Governor Lisa Cook, a still-ongoing investigation of Fed Chair Jerome Powell by the Department of Justice, and frequent public demands by Trump for lower interest rates.

Powell earlier this year called out the DOJ investigation as an effort to pressure him on monetary policy, an unusual rebuke of the president by a Fed chair.

Other Fed officials and global central bankers have rallied behind Powell, citing as did Bostic the risks the U.S. would be taking if the Fed’s standing was compromised. 

Trump has nominated former Fed Governor Kevin Warsh to become Fed chair when Powell’s term expires in May, though his confirmation has been complicated by pushback from Republican senators who objected to the DOJ’s probe of Powell and said they would block Warsh’s confirmation until the matter is clarified.

The situation has also left Warsh, Bostic said in an interview with Reuters this week, with the task of proving he will act independently of the president as Fed chair.

“One thing we’ll see is how, to the extent that there is pressure, … he responds to it. We won’t know until we know on this,” Bostic said. 

(Reporting by Howard Schneider; Editing by Andrea Ricci)