The Trump administration’s criminal investigation into the head of the Federal Reserve has raised concerns about the central bank’s independence. President Trump criticized the Fed for not lowering interest rates quickly enough. Other central bank officials defended Powell, emphasizing the importance of central bank independence for economic stability.

The Federal Reserve gained operational independence in 1951 after facing inflation issues during World War Two. Political interference in interest rate decisions continued until the early 1970s when rising inflation prompted a shift. A surge in inflation in the 1970s was partly attributed to pressure to keep interest rates low for political reasons.

Governments worldwide adopted new economic strategies after high inflation in the 1970s and early 1980s. Many central banks were granted operational independence to focus on maintaining low inflation rates. By the end of the 20th century, 80-90% of central banks globally operated independently, according to the Bank of England.

Central bank independence has been linked to low inflation rates over the past few decades. Factors such as the rise of low-cost goods from exporting countries also contributed. Central bank independence is considered a vital aspect of policymaking, with its impact on inflation and economic stability across various countries.

The 2007-09 global financial crisis strained support for independent central banking. Central banks implemented near-zero interest rates and massive bond purchases to stimulate the economy. Criticism arose, with accusations of printing money for political gain. Recent events, such as Russia’s invasion of Ukraine, have further tested central banks’ abilities to manage inflation and economic stability.

Read more at Yahoo Finance: Factbox-How independence came to be standard for global central banks