FRANKFURT, Feb 12 - Bundesbank President Joachim Nagel warned on Wednesday that a loss of independence at the U.S. Federal Reserve could increase political pressure on central banks globally and push up inflation across countries.
Nagel pointed to recent actions by U.S. political leaders as an example. He noted that sustained pressure from the U.S. President to see interest rates cut, together with the nomination of former Federal Reserve Governor Kevin Warsh to lead the Fed from May in the hope of reducing the Fed's market footprint and lowering borrowing costs, highlights how central bank decision-making can become politicized.
"If this political pressure succeeds, it could be taken as a blueprint for politicians in other countries to pursue similar policies," Nagel said. "If that were to happen, inflation levels could increase all over the world."
Nagel acknowledged that other senior central bankers have reacted to the Warsh nomination. He said that the heads of the European Central Bank and the Bank of England - Christine Lagarde and Andrew Bailey respectively - have welcomed the nomination, but he added that pressure on the Fed is expected to remain elevated. That dynamic may be particularly pronounced if the Fed pauses policy easing until mid-year, a timing that markets currently anticipate.
Turning to the situation in the euro area, Nagel said the ECB's independence is "well protected" but cautioned against complacency. He emphasized the simple reality that - because the world economy is interconnected - political pressure in one country can make it harder for the Eurosystem to pursue price stability.
The Bundesbank chief also highlighted the relative position of the ECB on inflation, noting that the ECB has kept inflation at its 2% target for nearly a year - a result he described as enviable compared with other major central banks that are still struggling to meet their objectives.
Nagel's remarks underscore concerns about how political actions in a large economy can ripple through global monetary policy frameworks and the challenge this poses for maintaining low and stable inflation across jurisdictions.