Warsh has pledged he will be independent. Jabko is not ready to take that at face value.
“He said during his hearings that he’s not going to do what Trump asks him to do, that he’s going to be independent,” Jabko said. “So we’ll have to not take him at his word, actually, this time, but really look at what he does and what the Fed does.”
Dangers of meddling in monetary policy
The history of what happens when governments take control of their central banks is not encouraging, Jabko noted. In Russia, political interference in monetary policy has repeatedly produced inflation that the state could not contain. In Turkey, President Recep Tayyip Erdogan’s pressure on the central bank was so destabilizing that the country went through multiple governors in a matter of years as inflation hit triple digits.
Jabko has a simple explanation for why that pattern keeps repeating.
“In a dictatorship, it is very often the case that dictators don’t really care so much about monetary stability,” he said. “They care about basically staying in power. And very often, if you look around the world, places like Russia or Turkey are places where the autocrat (Vladimir) Putin or Erdogan basically take over monetary policy, and then you get very high inflation.”
