When the Fed locked horns with the president before Christmas, it was clear who would be the winner
Central bank independence is the denim jeans of economic ideas – not fresh but still about as fashionable as economic policy gets. For a quarter of a century, more or less everyone has agreed that central banks should be operationally independent of government.
Independent central bankers are better placed than politicians to set the interest rates the economy needs. The latter face the “time inconsistency” problem: they want to cut rates to make us happy today – before an election, for example – even though it will damage the economy tomorrow.
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