The damage to Fed independence doesn't have to happen with a big bang, but could be much more subtle. There is criticism of the Fed from parts of the MAGA camp because it allegedly spends too much money: too many staff, the new office building is too expensive ('a second Palace of Versailles'), etc. That is why it must be subject to political control, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.
Lavish buildings seen as threat and justification
"I am also sometimes surprised that at a time when commercial banks are practicing new modesty (there has been scaffolding in front of my office for months!), central banks are building buildings that make your jaw drop. This observation is actually an argument in favor of central bank independence. It shows that no one who can print money can resist the temptation to spend unnecessarily. Not even central banks. It's just that in their case, it's not so bad. They can't build such huge, palatial office buildings that it becomes relevant in macroeconomic terms. If finance ministers had this option, things would look very different."
"The macroeconomic damage would be enormous, with accelerating inflation as a result. It is therefore a hundred times better to allow central banks their buildings and lavish staffing levels than to attack their independence. The Fed has now announced that it will cut 10% of its staff in anticipatory obedience. Does that reassure me? On the contrary! The Fed has shown itself to be responsive to political pressure."
"In the worst case scenario, we could end up with a Fed that has shrunk so much that it is de facto incapable of acting. Very much like USAID . This is another way in which central bank independence can be abolished."
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