사진 확대 At a forum hosted by the European Central Bank (ECB) in Sintra, Portugal on the 1st, Jerome Powell, chairman of the U.S. Federal Reserve, received a sudden round of applause. The audience was cheering when he showed a firm stance that “I’m 100% focused on my job” under the pressure of U.S. President Donald Trump, who is shaking him up. ECB President Christine Lagarde, who was next to her, also said, “If I were in the same position, I would have acted the same as Powell.” The heads of central banks, who are considering the optimal monetary policy for each country in different economic situations, have reached a consensus.
The Fed has laid the foundation for an independent monetary policy since its 1951 agreement with the Treasury Department. The beginning is also a conflict between then-President Harry Truman and Fed chairmen. After the war, President Truman, who tried to lower the interest cost of huge government debt, clashed with Chairman Thomas McCabe, who refused a low-interest rate request, and finally fired him. Then, contrary to expectations, he also blushed throughout with Chairman William Martin, who had a strong hawkish policy. President Richard Nixon and Chairman Arthur Burns of the 1970s, and President Ronald Reagan and Chairman Paul Volker of the 1980s were also at odds.
It has been less than 30 years since Korea has been guaranteed the independence of the Bank of Korea as it is now. In the wake of the foreign exchange crisis, the revised Bank of Korea Act came into force in 1998. Until then, the Bank of Korea had been called the “Ministry of Finance’s Namdaemun branch office.” Later, during the Lee Myung Bak administration, then Minister of Strategy and Finance Kang Man-soo pressured Bank of Korea Governor Lee Seong-tae, saying, “I can veto the BOK’s decision.” In the Yoon Suk Yeol government, when the central bank froze interest rates for 13 consecutive times in August last year, then-Presidential Office in Yongsan took aim at Bank of Korea Governor Lee Chang-yong with an unusual announcement.
Political power cannot always resist the sweet temptation of lowering interest rates. Despite the cumulative national debt reaching 36.9 trillion dollars (about 5 trillion won), President Trump pushed for a large-scale tax cut law. The move is aimed at responding by reducing interest on government bonds with the Fed’s interest rate cut. This is why Chairman Powell and the Fed are pushed to the point where they are close to “collective lynching.”
If interest rates are frozen as expected at the Federal Open Market Committee (FOMC) on the 30th (local time), President Trump may think he has lost his battle with Powell. However, it is not a victory for Powell. Interest rate decisions are not even a game, but an area where politics should not intervene.
Even if Powell completes his term by May next year, the successor has vowed that President Trump will seat a person who cuts interest rates. There is already a widespread “powel hedge” in the market that buys short-term U.S. bonds and sells long-term products. Markets that have lost faith that prices will stabilize in the long run fall into a vicious cycle in which expected inflation pushes up inflation.
Martin, who spent the longest time in office despite being at odds with the regime and laid the foundation for a modern central bank, described the central bank’s role as “the role of clearing the punch bowl when the party is in full swing.” When everyone is in a boom, someone has to pour cold water on them as an inflation fighter.
Powell was criticized for raising interest rates during the inflationary period in 2021 and for lowering interest rates during the economic downturn in 2024. Maybe Powell won’t make it to the ranks of ‘master’ like Volker and Alan Greenspan, as well as Martin. However, it should only show that it has not surrendered to power that threatens the independence of the central bank.
[New York correspondent Lim Sung Hyun]