Central Banks Face Independence Crisis Amid Growing State Influence

The central bank's independence is facing its sternest test in decades as governments increasingly direct finance. The Federal Reserve recently raised interest rates, despite President Trump's repeated calls for lower rates.

Martin Sandbu of the Financial Times argues that this growing influence of government on capital flows contradicts the institutional settlement of the past three decades, where independent central banks set monetary policy against inflation targets.

Sandbu poses three questions: whether independence is possible under the new statism, whether it should be, and what adaptations to expect if it cannot. The near-term test will be observable in upcoming policy decisions, particularly those of the Federal Reserve, European Central Bank, and Bank of England.