Some have asked me to elaborate on my earlier post, so let me start with two hypotheses. The first, and I feel very strongly about this, is that central bank independence is critical for better economic outcomes. It is a core principle that guides my thinking on this issue. Second, and likely to be more of a reality than a hypothesis (as was demonstrated again just now in a White House briefing), is that the Administration’s attacks on Chair Powell are likely to escalate in the days and months ahead. Moreover, these won’t just target him personally but will increasingly involve broader aspects of the institution itself, as is already happening. Taken together, these two place us firmly in the realm of "second-best" options. The first best – Chair Powell serving out his term and there being no attacks on the independence and reputation of the Fed – is highly unlikely, if not entirely so. If the principal objective is to protect the Fed’s independence—which I deeply believe in—we need to ask: what path best serves that goal? Option one: Chair Powell remains in office, but the Fed becomes an even bigger magnet for political attacks and investigations—including a focus on recent policy errors and bad forecasts (including that of “transitory” inflation), “mission creep,” a costly renovation, insider trading allegations, lapses in the supervision of certain California-based banks, and more. Meanwhile, his term is widely expected not to be renewed in May, and well before then, markets and policymakers alike will view him as a lame duck with limited forward guidance power as a new Fed chair is nominated (probably within the next few weeks). Option two: Chair Powell voluntarily steps down. The political attacks on the Fed will probably moderate significantly, and a credible successor is appointed from q shortlist that already includes candidates committed to preserving the Fed’s autonomy and, in the case of some, strengthening it for the future. Again, I realize this isn’t the consensus view. Most still favor the “first-best” option of Chair Powell staying on and without political interference. But I fear that’s no longer attainable. Were it viable, I would be fully aligned with it. And a final note: whoever follows Chair Powell will inevitably have to pursue reforms within the Fed. For what some of those reforms might look like, and why they matter, I’d point you to the G30 report (link below--Full disclosure: I was a member of the working group for that report). As always, I welcome your feedback. #economy #federalreserve #markets