Why Central Banks & Politics Should Never Mix

 

 

Hi everyone!

Today, let's talk about why central bank independence matters — and why investors are paying close attention.

Central banks, like the U.S. Federal Reserve, referred to as the Fed, manage monetary policy to balance inflation and employment. It's critical that they do this free from political pressure. Recently, there’s been tension between President Trump and Fed Chair Jerome Powell, with Trump threatening to remove him over policy disagreements.

Legally, removing a Fed Chair is very difficult. But even the threat raises concerns. Why? Because history shows that political influence over central banks — in places like Argentina and Turkey — often leads to runaway inflation and financial instability.

For investors, central bank independence helps anchor inflation expectations and supports stable markets. Political interference could trigger higher volatility, falling bond prices, and a weaker dollar.

Our recommendation? Stay diversified and focus on quality investments that can weather short-term volatility. Central bank independence remains a pillar of long-term economic health.

As always, we’re here to answer any questions you might have.

Approved BMO Source: https://uswealth.bmo.com/media/filer_public/a0/50/a050ceec-ae09-49d8-b959-1c3a08d3134f/weekly_strategy_perspectives_-fed_independence_under_fire__2025-04-24.pdf