As political chatter heats up around U.S. President Donald Trump’s moves to sack a Federal Reserve governor, amidst his persistent efforts to pressure Fed chairman Jerome Powell to shift rates policy, a familiar chorus has returned - the demand to defend the independence of the Fed. The argument is framed as if the central bank’s autonomy is a sacred principle, an institutional firewall against political meddling. But as James Galbraith reminds us in two recent essays - “Two Ossified American Rituals: The Budget and the Central Bank” (Intereconomics, 2025) and “The Origins of the Modern Era of the Federal Reserve: Five Books” (Brave New Europe, 2025) - this narrative is wrong on two counts. First, the Fed has never truly been independent. Second, the notion that its independence guarantees stability or prosperity is not only historically inaccurate but increasingly irrelevant.
It’s time to reframe the debate. Trump’s provocations directed at the Fed isn’t an invitation to defend a myth; it’s an opportunity to rethink the institutions of central banking and their political governance.
The Myth of Independence
Galbraith revisits the historical record to show that independence was always more myth than fact. Created by Congress in 1913, the Fed has always been a statutory creature, its powers granted, limited and periodically revised through legislation. Far from a technocratic citadel, it was originally designed as a compromise, balancing regional and national interests, as well as public and private power.
Over time, this myth hardened. The Humphrey-Hawkins Act of 1978 codified the Fed’s dual mandate of maximum employment and price stability, but also subjected it to regular congressional hearings. In the 1970s, Representatives Wright Patman and Henry Reuss championed legislation requiring the Fed to report and justify its policies quarterly. This was an attempt to democratise monetary policy and hold it accountable.
Yet, as Galbraith notes, later Fed chairs such as Alan Greenspan and Ben Bernanke deftly transformed these hearings into spectacles that ritualised performances of technocratic mystique. Through opaque language and self-assured demeanour, they reinforced the illusion of an expert body standing above politics. Independence became a rhetorical shield even if it was and is not an empirical fact.
The Ossification of Monetary Policy
In “Two Ossified American Rituals,” Galbraith draws a parallel between the federal budget process and the Fed’s operations: both have become rigid, ceremonial and detached from their original purposes. In the Fed’s case, the ossification is compounded by declining effectiveness. Fifty years ago, its actions mattered. Today, they matter far less.
The structural weight of the Fed in the financial system has eroded. In the Volcker era, the Fed exercised significant control over credit conditions because commercial banks - its primary lever - were central to lending. Now, banks hold a shrinking share of business loans. Shadow banking, global capital markets, and asset-based finance dwarf the Fed’s traditional tools. Even massive balance sheet expansions in 2008 and 2020 demonstrated that liquidity injections stabilise markets in crisis - superficially at best - but do little to direct long-term productive investment. Rather, it is increasingly clear that these bouts of liquidity injection exacerbated the distributional conditions that underpinned the financial crisis of 2008 in the first place.
Despite this, monetary policy remains fetishised. Interest rate adjustments are treated as talismans, as if 25 basis points up or down could dictate the fortunes of a $27 trillion economy. Galbraith bluntly concludes: “Fifty years ago, the actions of the Federal Reserve mattered. Today, they do not.” Monetary policy is a blunt - and increasingly dull - instrument in a financialised, globally interconnected system.
“Fed Independence” Is the Wrong Debate
Against this backdrop, the hand-wringing over Trump’s moves to fire a Fed governor and his persistent public pressuring of Fed Chair Jerome Powell, looks misplaced. The issue isn’t whether to “defend” independence or not. Independence was never absolute; nor, as I will suggest, is it normatively desirable. The real question is altogether different: What kind of accountability and governance should a modern central bank have in a democracy?
Defenders of independence argue it protects against short-term political pressures; typically, the fear of inflationary populism. But this argument doesn’t pass muster when we look at it closely.
First, the Fed’s most dramatic policy shifts have often been political. Volcker’s interest rate shock in the early 1980s was a political decision with vast distributive consequences. Bernanke’s crisis interventions required close coordination with Treasury and Congress. Neither of these momentous interventions was independent at all. The effects are of course deeply political because of their distributional implications. Consolidating the concentration of wealth via monetary channel management reinforces the political power of finance capital, and accelerates the imperatives of fictitious capital. Second, independence does not guarantee neutrality, whatever that is taken to really mean. It simply shifts influence from elected officials to unelected elites - that is, central bankers, financial industry lobbyists and market actors who interpret Fed signals. Third, the democratic deficit is profound. If monetary policy has major social effects, why should its architects be insulated from public oversight?
On this score, Trump actually has a point, which shouldn’t be dismissed lightly.
Galbraith’s historical analysis underscores this point. Congress has always had the authority to guide, constrain or reshape the Fed’s role. The Patman-Reuss reforms in their respective eras were an early acknowledgment that economic governance belongs in the public sphere. (In another essay, a review of Stoller’s Goliath: The 100-Year War between Monopoly Power and Democracy, Galbraith recounts the work of Reuss, but that need not detain us here.) That lesson - that economic governance belongs in the public sphere - remains urgent today. The difference, perhaps, is that Trump is seeking to bring the Fed under the direct authority of the executive, rather than expose it to the authority of the legislature. But this is precisely the debate to be had, not whether “independence” should or should not be defended.
Beyond the Fed Fetish
A more fundamental problem is not the myth of independence per se, but what that myth conceals or distracts attention from. Behind the rhetoric is an over-reliance on monetary policy at the expense of fiscal, industrial and regulatory strategies. The ritual of Fed-watching - parsing every word of Jerome Powell’s testimony, obsessing over dot plots and the like - distracts from structural levers that actually drive economic outcomes. Where are the debates about the role of public investment, job creation, industrial policy, and financial regulation?
Galbraith’s critique is clear, actually. In short, monetary policy has been overrated for decades. It cannot, by itself, deliver full employment, reduce inequality, or stabilise long-term growth. Treating the Fed as the omnipotent manager of the economy is a category error, but it’s one reinforced by the independence myth. The more folk believe in the Fed’s magic, the more folk neglect the fiscal and legislative tools that matter. And this message goes for those in Congress as much as it does for those in voter-land.
The Real Debate That’s Needed
Trump’s provocations expose the fragility of the independence narrative. But rather than doubling down on a fiction, this moment should catalyse a broader conversation. Unpicking the entrails of the 2008 financial crisis led analysts such as Engelman et al in their book After the Great Complacence to raise serious doubts about the extent to which “technocratic” institutions, normalised by a culture of “detached expertise”, should be held culpable - in part at least - for the disaster that unfolded. They weren’t the only ones. Yet, nearly 17 years on from that crisis, we again confront the same questions.
So, we must ask: What do people want from a central bank in the 21st century? What should its mandate include? How does a community ensure transparency and accountability without reducing monetary policy to the flip-flop of partisan whim? If detached technocratic capability is a misplaced myth, the absence of knowhow and the dominance of political whimsy are similarly problematic. Partisan erratic policy-making on the fly isn’t much good either.
Defending the old myth serves no one. Recognising that the Fed is - and always has been - a political institution allows people to confront the real choices ahead. The alternative is to cling to ritual while the world changes, mistaking performance for power and technocracy for governance. The political liberals have become attached to a technocracy whose intellectual conceits and policy failures have been central to the financial and social debacles of recent decades.
Defending the Fed’s (mythical) independence in the face of Trump’s attempts to inveigle the Fed to executive diktat shows up the liberal’s political callowness and timorous conservatism. There is no independence to defend; what there is, however, is the opportunity of real public accountability and directional oversight to grasp.