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This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersUS central bankers attending the Jackson Hole symposium later this week are getting used to facing fire from President Donald Trump. They are not alone. Most economic institutions that have delegated autonomy under US law to regulate or produce information have felt the heat this year. To see the emotional costs, watch this interview with Todd Harper, who was fired without cause from the board of the National Credit Union Administration in April. It comes courtesy of my colleagues in FT Specialist publication Banking Risk and Regulation. Read on for the economic costs. What is the benefit of autonomy?It is almost a truism. Fed chair Jay Powell and monetary policy officials repeat so often that independence from day-to-day politics enables better decisions that it is not really questioned. Autonomy “has been an institutional arrangement that has served the public well”, Powell said in the last Federal Open Market Committee press conference without any challenge. My colleague Joel Suss produced a clear summary of the benefits of central bank independence on the FT’s Monetary Policy Radar last year, with lots of references and links. One of the most relevant academic contributions was written by Carola Binder of the University of Texas at Austin, who examined the effects of political pressure on central banks around the world. Sound familiar?She divided political pressure into two categories. In the first central banks resisted, while succumbing in the second. Both were found to be associated with higher inflation, although the relationship was much stronger when central bank resistance faltered. The raw data from 160 monetary policy institutions is difficult to argue with. Central banks with no political pressure had an average inflation rate of 5.5 per cent, those resisting pressure had an average inflation rate of 7.4 per cent and those succumbing to it faced a rate of 9.1 per cent. I caught up with her last week. She said she “would still classify the Fed as resisting the pressure . . . [because it] did not cut rates at the president’s demand”. Over time, however, central banks that resist still tend to preside over rising inflation, albeit with a lag of six quarters. That should just about see Powell through to the end of his term. Resistance to pressure depends on the degree of independence available to a central bank, a measure for which the US is now below average. This uses the definitions of Davide Romelli of Trinity College Dublin, who has categorised central bank independence using numerous metrics. Romelli told me that his measurement is based on a country’s laws and is deliberately conservative. If he were producing an updated table today, the US figure would not change because the law has not changed, he said, but “the persistent public criticism of chair Powell . . . clearly raises concerns about the de facto independence of the Fed”. Click on the chart to see some of the different dimensions of independence.Some content could not load. Check your internet connection or browser settings.Jawboning the FedLet us look at some of the de facto challenges to US central bank autonomy. Everyone has heard Trump call Powell a “stiff”, “numbskull” and “too late”. But the Fed has generally had respectful treatment from Scott Bessent, US Treasury secretary. Bessent started in office saying neither he nor the US president wanted to influence the Fed’s decisions on short-term interest rates. Trump broke that rule immediately and Bessent appeared last week to have fallen into line. In an interview with Bloomberg, he said interest rates were too constrictive: “You know, if you look at any model . . . we should probably be 150, 175 basis points lower” (7 min, 23 secs).Any model? The godfather of all interest rate models is the Taylor rule, which links the short-term interest rate to the neutral real interest rate, the inflation target, the difference between inflation and the target, and the output gap. It is far from perfect and can be backwards looking, but it is not a bad approximation. There are many possible data sources for these variables, and the Atlanta Fed helpfully produces estimates for all possible combinations. In the table below, I have replicated 30 different variations of the Taylor rule for current US economic conditions using the default variables from the Atlanta Fed. Only one suggests the interest rate is too high.Later in the week, Bessent backtracked: “I didn’t tell the Fed what to do. What I said was that to get to a neutral rate on interest, that would be approximately a 150 basis point cut. I did not call for them to get there,” he said (17 mins 20 secs).Unlike the first, Bessent’s second version was a fully defensible position. Some content could not load. Check your internet connection or browser settings.A temporary irritantThere is nothing sinister about Trump nominating Stephen Miran to be a Fed governor. That is his right as per the US system. But Miran has interesting and changeable views on monetary policy, which are likely to make him an irritant on the board.Sometimes he gives the standard view, such as this full-throated support of independence from October 2024.An independent central bank delivers better monetary outcomes over time because it can make decisions focused on the economy rather than the short-term political calendar.But his thinking is inconsistent. In a note he co-authored from March 2024 on reform of the Fed, he started by saying he wanted a structure that ensured it could operate with sufficient independence to set effective monetary policy free from political control, while also being accountable to democratic institutions. Few would disagree. In the detail of the note, however, he did not seem to notice that one sentence was glaringly inconsistent with his earlier ambition. Board members and Reserve Bank leaders should be subject to at-will removal by the president to ensure their accountability to the democratic process.That would remove the one protection from Trump that members of the FOMC have. It is lucky that Miran appears just the temp for now. Let’s turn it up to 11Scott Bessent (again) gets full marks for his willingness to be humiliated. In the same interview in which he mixed up his models, he said he would be interviewing 11 candidates to become the next Fed chair. See Alphaville for the definitive low down of the 11.But yet again, Trump went off script and shot down this pretence of a serious and objective selection process. Within hours, he told reporters he was “down to three or four names”.The front runners at the moment are National Economic Council director Kevin Hassett, former Fed governor Kevin Warsh and current Fed governor Christopher Waller. Do not rule out someone outside these names, though. Trump has a long-standing habit of hiring Fox News contributors and hosts for positions. (None are part of the four or the 11 yet.)EJ does itWhen not appearing in the crowd at the January 6 2021 US Capitol attack, EJ Antoni, Trump’s pick for Bureau of Labor Statistics commissioner, spends a lot of his time writing partisan economic arguments.His paper with Peter St Onge, Recession Since 2022: US Economic Income and Output Have Fallen Overall for Four Years, caught my eye, partly because it revolves around the definition of inflation. The title was a bold claim at odds with official data and opinion. The paper argued that if you use the pre-1983 BLS methodology for calculating CPI inflation, the US economy would have recorded much higher inflation in the 2021-2024 period. It goes on to deflate GDP with these much higher inflation figures, and finds “adjusted real GDP” falling when US interest rates rose in 2022. His chart is below. Some content could not load. Check your internet connection or browser settings.Other economists, including former Harvard University president Lawrence Summers, have also used the pre-1983 BLS inflation methodology to make the argument that such data can help explain why economic sentiment was worse than economic data. They did not remotely argue the series was an appropriate GDP deflator. When I wrote in June about dodgy official data, I said it was important to look for “corroborating evidence and broad trends” when taking decisions amid data uncertainty. We can do this for volume indicators to see whether Antoni’s adjusted real GDP looks plausible. Menzie Chinn, of the University of Wisconsin-Madison, has been on the case. Back in November, he wrote a short paper critiquing Antoni’s work. He examined multiple series of data on volumes that do not rely on any inflation statistic — such as hours worked, payrolls and employment — which I have charted alongside Antoni’s adjusted GDP measure. In the chart below, I am comfortable saying there is no credible evidence the US economy has been in recession since 2022. Antoni did not respond to requests for comment.Some content could not load. Check your internet connection or browser settings.What I’ve been reading and watchingChina’s economy is in the doldrums again.A regular feature at Monetary Policy Radar records analysts’ views. Last week we spoke to those that still believe the Fed will not cut rates this year.I asked the question of what would happen if Trump hired a nutter to chair the Fed.A chart that mattersProducer price indices are rarely exciting and are often complicated. The US figures for July broke one of those rules. It was notable because prices at the US factory gate for final consumers rose at the fastest monthly rate since 2022. The figures were complicated by the strengthening of pricing being mostly in services, not goods — so it is not a simple tariff story. It might be an indicator of firming overall inflationary pressures, however. Some content could not load. Check your internet connection or browser settings.Central Banks is edited by Harvey NriapiaRecommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. 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This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT. On today’s agenda: S&P Global last night held its rating on US government debt, saying the revenues from President Donald Trump’s aggressive tariff policies will offset the impact of the administration’s signature tax and spending bill. Rating maintained: The influential agency said that it would keep its sovereign credit rating at ‘AA+/A-1+’, between its second- and third-highest rating. Analysts at the agency forecast that “broad revenue buoyancy, including robust tariff income, will offset any fiscal slippage from tax cuts and spending increases” planned in the US in coming years.Why it matters: The verdict comes after the Trump administration hit dozens of its trading partners around the world with new tariffs. Rates on imports have hit the highest level in nearly a century, sparking fears that they will curb global economic growth. In May S&P’s rival Moody’s cut the US from its highest credit rating on fears over the rising levels of government debt and a widening budget deficit in the world’s biggest economy. But S&P forecast the US budget deficit would average 6 per cent of GDP between 2025 and 28, down from 7.5 per cent last year. Read more on S&P’s rating. Here’s what else we’re keeping tabs on today:China-India relations: China’s foreign minister Wang Yi is scheduled to meet India’s Prime Minister Narendra Modi in an attempt to ease tension between the world’s two most populous countries.Economic data: Canada releases consumer price index data for July. Mexico’s national statistics agency publishes its preliminary economic growth figures for the same month.Companies: Home Depot, Medtronic and bank tech provider Jack Henry report results.Join FT journalists and guests including Sir Michael Moritz for a subscriber webinar examining how political attacks on elite US universities and cuts to federal research funding are reshaping the landscape of US innovation. Register for free here.Five more top stories1. Donald Trump said the US would help arrange European security guarantees for Ukraine if peace could be agreed with Russia after a day of intense diplomatic talks in Washington. The US president said he pledged to set up a meeting between Volodymyr Zelenskyy and Vladimir Putin. Read more on the outcome of the talks.Opinion: Trump’s peace juggernaut is careering forward. But few people can tell where it is heading, writes Ben Hall.2. Canada’s Conservative leader Pierre Poilievre is on track for a comfortable victory in a by-election that will allow him to re-enter parliament after he suffered a crushing election defeat earlier this year. The Conservative leader’s return to parliament is likely to add new pressures on Prime Minister Mark Carney.3. SoftBank’s billionaire founder Masayoshi Son held talks with Intel’s chief executive about buying its faltering contract chipmaking business. SoftBank announced yesterday it planned to invest $2bn in Intel in exchange for a 2 per cent stake in the troubled US chipmaker after the end of wide-ranging talks between Son and Intel chief executive Lip-Bu Tan.4. A private equity deal for €6bn UK private school operator Cognita is on the brink of collapse, with a stake sale to the final remaining bidders Blackstone and CVC now unlikely to proceed. Read what the faltering sales process means.5. Exclusive: BHP has demanded to know who is in charge of a £36bn lawsuit against it after the chief executive of the law firm bringing the case was pushed out by the US hedge fund backing the claim. Suzi Ring has more from London.The Big Read© FT montage/Getty Images/Reuters/BloombergThe first in a series on organised crime looks at the threat drug cartels pose to Latin America’s stability. With the global cocaine business booming as never before, organised crime groups are diversifying into a swath of other illicit activities. Meanwhile, drug-related violence has become a feature of life in virtually every country in the region.We’re also reading . . . The boss is back: Five years after the Covid pandemic forced employers to embrace empathy and flexibility, bosses are back to laying down the law, writes Brooke Masters. GOP: Patti Waldmeir takes the temperature among Republicans at the Illinois State Fair and finds them in upbeat mood.US trade policy: Washington is denying itself the benefits of the system that already exists, writes Inu Manak, Council on Foreign Relations fellow.Chart of the daySome content could not load. Check your internet connection or browser settings.At a Nio battery-swapping station near Shanghai it takes just three minutes to power up an electric vehicle. A series of investments in swapping infrastructure by CATL, the world’s largest battery maker, is set to pave the way towards the wider adoption of the technology in China, the world’s biggest EV market. Read more on how the process works.Take a break from the news . . . From sustainable materials to passive design, architects are turning to the tropics for inspiration on how to live in an era of intensifying climate challenges.Bangkok designer Boonserm Premthada made his Back of the House project using bricks upcycled from power plant waste More
Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK economic output was bigger on the eve of the last general election than was previously estimated, according to revised GDP data that points to a slightly stronger post-pandemic recovery.Britain’s GDP at the end of 2023 was 2.2 per cent higher than its pre-pandemic peak, an improvement on the previous estimate of 1.9 per cent, the Office for National Statistics said on Tuesday. GDP per capita was also improved but still below pre-coronavirus levels. The revisions were driven in part by improvements to ONS estimates of research and development activity, which suggested that the UK does better on such investment compared with peer countries than previously thought.The figures from the statistics agency paint a slightly more positive picture of UK GDP after the pandemic and in the lead-up to the 2024 general election, in which the Conservatives suffered a big defeat at the hands of Labour in part because of discontent over the economy. But Paul Dales, UK economist at research company Capital Economics, stressed that the revised data did not fundamentally change the lacklustre performance of the UK after the onset of the pandemic. “This still leaves the recovery in the UK more muted than in the US and the Eurozone,” he said. “The small upward revision to the level of real GDP doesn’t mean the economy will be any stronger in the future.”The revisions leave average annual growth rates little changed, remaining at 1.8 per cent between 1998 and 2003. Quarterly growth rates still averaged 0.5 per cent during the period.“While the size of the economy now captured by GDP has increased, the long-term pattern of growth is broadly unchanged,” said Craig McLaren, ONS head of national accounts. The figures still suggest the UK has struggled to gain momentum since the pandemic. Real GDP on a per-head basis in the fourth quarter of 2023 was estimated to be 1 per cent lower compared with the final quarter of 2019, on the eve of the pandemic. The previous estimate was 1.4 per cent lower.Among the other drivers of the revisions are the incorporation of corporation tax returns that point to higher company profits than previously estimated, and upgraded estimates of educational activity.Corrections to ONS data on business inflation and improvements to estimates of the overseas output of large, UK-owned manufacturers, such as pharmaceutical companies, also played a role in the revision. But the biggest driver of the changes was an overhaul to the way the ONS measures research and development, adding 1 per cent to the level of UK GDP in 2023. The changes mean Britain compared more favourably with other countries in terms of R&D than previously, the ONS noted. Before changes to the way the agency surveys the activity, UK investment in R&D was just above that of Italy as a share of GDP but slightly below the Netherlands and France. The new data indicates British R&D is higher than both these countries, but still lower than countries such as Germany, the US and Japan, according to the ONS.McLaren said the new numbers would be incorporated into the ONS’s headline figures from September. Once they are fully integrated, UK GDP in the second quarter of this year should be about 4.9 per cent higher than its pre-pandemic level, said Dales. But that was still below 6 per cent in the Eurozone and well under the US figure, where GDP was 12.9 per cent above its pre-pandemic level, he said. Among G7 countries, only Japan and Germany had registered a smaller rise in GDP since the end of 2019, Dales added. More
