Threat to Fed's independence boosts economic uncertainty, says Bank of Canada head

• Trump is seeking to remove Fed governor Lisa Cook while the DOJ has threatened Chairman Powell with criminal indictment, marking an escalation in political pressure on the central bank
• Macklem stated that 'a loss of independence of the Fed would affect us all' and that the Fed is 'the biggest, most important central bank in the world'
• Bank of Canada senior deputy governor Carolyn Rogers noted that a strong, independent Fed benefits virtually every economy by keeping markets and inflation stable, contributing to predictability and less volatility

Summary:

Bank of Canada Governor Tiff Macklem issued his strongest warning to date regarding threats to U.S. Federal Reserve independence, stating it is significantly increasing global economic uncertainty. On January 28, following the Bank of Canada's decision to hold interest rates steady, Macklem emphasized that the Fed is "the biggest, most important central bank in the world, and we all need it to work well."

Key Context:

President Donald Trump has intensified pressure on the Federal Reserve through repeated public criticism of Fed Chairman Jerome Powell, demanding interest rate cuts. The administration is attempting to remove Fed Governor Lisa Cook, while the Department of Justice has threatened Powell with criminal indictment.

Market Implications:

Macklem warned that "a loss of independence of the Fed would affect us all," with Canada being particularly vulnerable given its close economic ties to the United States. He stressed that central bank independence enables institutions to make "difficult decisions" benefiting citizens based on evidence and facts.

Bank of Canada Senior Deputy Governor Carolyn Rogers reinforced these concerns, noting that a strong, independent Fed benefits virtually every global economy by maintaining market stability, controlling inflation, and reducing interest rate volatility.

International Response:

Macklem was among central bank leaders who issued a joint statement earlier this month supporting Powell. In September, he had previously noted that Trump's attempts to influence the Fed were beginning to impact markets.

The statements reflect growing concern among global financial leaders about potential disruption to the international monetary system and increased market uncertainty stemming from political interference in central banking operations.