Central banks rarely step into the political spotlight, but events unfolding in the United States have prompted an unusually unified response from monetary authorities around the world.
Reserve Bank of Australia Governor Michele Bullock has publicly expressed her full support for US Federal Reserve Chair Jerome Powell, joining more than a dozen global central bankers in defending the independence of monetary policy. The statement follows an escalation in tensions between US President Donald Trump and the Federal Reserve, a dispute that has unsettled markets and policymakers alike.
A Clash Between Politics and Monetary Policy
The immediate trigger for the response was the decision by the US Department of Justice to issue a subpoena to Jerome Powell, a move widely viewed as politically motivated and orchestrated by Donald Trump.
Trump has been openly critical of Powell since returning to the Oval Office, arguing that US interest rates should be significantly lower. He has repeatedly called for Powell to be removed and replaced with someone more aligned with his policy preferences, breaking with long-standing conventions that protect central bank independence.
The investigation centres on Powell’s testimony to Congress last year regarding the cost of renovations to Federal Reserve buildings. Powell has dismissed the threat of criminal charges as a pretext in a broader attempt to exert control over US interest rate policy.
A Rare Show of Global Solidarity
In response, Bullock joined sixteen other central bank leaders in issuing a statement defending Powell and the principle of central bank neutrality.
“The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve,” the statement said. “It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.”
The signatories included leaders from the European Central Bank, the Bank of England, the Swiss National Bank and several Nordic central banks. While such coordinated statements are uncommon, the message was clear. Political interference in monetary policy poses risks well beyond national borders.
Why Independence Matters
Central banks are tasked with making decisions that are often unpopular in the short term but necessary for long-term economic stability. This includes raising interest rates to control inflation, even when doing so creates political pressure.
If markets begin to believe that interest rate decisions are driven by political agendas rather than economic conditions, confidence can erode quickly. Credibility, once lost, is difficult to restore.
Economists have warned that a politicised Federal Reserve would struggle to anchor inflation expectations, increasing volatility not only in US markets but across the global financial system. Given the central role of the US economy, the consequences would inevitably flow through to other economies, including Australia.
Why This Matters for Australia
While the dispute is centred in Washington, it has implications far beyond the United States. Global capital markets are deeply interconnected, and uncertainty around the governance of the world’s most influential central bank can affect currencies, bond yields and investor confidence worldwide.
For Australia, this episode reinforces the importance of maintaining strong institutional frameworks and policy independence. It also serves as a reminder that economic stability is not just about inflation prints and interest rate settings, but about trust in the systems that underpin them.
At a time when inflation remains a challenge and interest rate expectations are finely balanced, preserving the credibility of central banks has never been more important.
The public backing of Jerome Powell by Michele Bullock and her global peers is less about personalities and more about principles. In an uncertain global environment, those principles remain a critical anchor for financial stability.
