Narayana Kocherlakota, Columnist

How Trump Could Spell Trouble for the Fed

The president could threaten the central bank's valuable independence.

November 15, 2016 at 12:00 PM UTC

Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

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Research has documented that central banks around the world have been better able to control inflation if they enjoy independence from elected officials. The election of Donald Trump seems like a good time to remind ourselves that, historically, the executive branch has presented the greatest threat to the independence of the U.S. Federal Reserve.

Since its founding in 1913, the Fed has experienced two big failures of independence. The first occurred during World War II and its aftermath, when the central bank held long-term interest rates down to allow the government to borrow cheaply. Inflation soared to nearly 10 percent during the early days of the Korean War, until the arrangement ended with the so-called Fed-Treasury accord in 1951.