One of the must-watch economic events this week will be the Bank of Canada interest rate decision. The rate decision is due to be announced at 15:00 PM London time on Wednesday. Why is the announcement important?
A bank interest rate is a rate at which a country's central bank lends money to local banks. The interest rate is charged by the nation's central or federal bank on loans and advances to control the money supply in the economy and the banking sector. The Bank of Canada has an inflation target of 1% to 3% (currently 1%).
The interest rates are changed accordingly to meet the target. The decision to increase, decrease, or maintain the interest rate has a significant impact on the financial markets so it is one of the most closely watched economic events in the calendar. Bank of Canada interest rate changes since 2015 Expectations All eyes will be on the Bank of Canada governor, Tiff Macklem on whether the interest rate remains unchanged at 0.25% or reduced closer to 0%.
Canada has had one of the strictest lockdown measures in the world in its fight to defeat the Coronavirus in recent months, which has had a considerable impact on the country’s economy. Despite that, the rates are expected to remain unchanged, according to economists. Brett House, vice-president, and deputy chief economist at Scotiabank: ''We do not expect a rate cut from the Bank of Canada at its next meeting as rate-sensitive sectors don’t need an additional boost.
For instance, Governor Macklem noted before the holidays that we should watch how housing is faring... Canadian home sales were up 7.2 per cent month-over-month in December to set a record for the month, which completed an annual gain of 12.6 per cent year-over-year. In other areas, retail sales have been above year-ago levels for several months.'' ''Although some immediate risks to the economy have gone up with intensified restrictions to stem the spread of COVID-19, medium-term risks relevant for setting monetary policy have abated.
Vaccines are being delivered about a year ahead of the Bank of Canada’s earlier expectations; the U.S. stimulus and funding bill passed and a government shutdown was averted, which will provide some positive spillover effects into Canada; and financial conditions remain favourable to growth.'' The Monetary Policy Report is set to be released shortly after the rate decision.
For over 110 years, the Federal Reserve (the Fed) has operated at a deliberate distance from the White House and Congress.
It is the only federal agency that doesn’t report to any single branch of government in the way most agencies do, and can implement policy without waiting for political approval.
These policies include interest rate decisions, adjusting the money supply, emergency lending to banks, capital reserve requirements for banks, and determining which financial institutions require heightened oversight.
The Fed can act independently on all these critical economic decisions and more.
But why does the US government enable this? And why is it that nearly every major economy has adopted a similar model for their central bank?
The foundation of Fed independence: the panic of 1907
The Fed was established in 1913 following the Panic of 1907, a major financial crisis. It saw major banks collapse, the stock market drop nearly 50%, and credit markets freeze across the country.
At the time, the US had no central authority to inject liquidity into the banking system during emergencies or to prevent cascading bank failures from toppling the entire economy.
J.P. Morgan personally orchestrated a bailout using his own fortune, highlighting just how fragile the US financial system had become.
The debate that followed revealed that while the US clearly needed a central bank, politicians were objectively seen as poorly positioned to run it.
Previous attempts at central banking had failed partly due to political interference. Presidents and Congress had used monetary policy to serve short-term political goals rather than long-term economic stability.
So it was decided that a stand-alone body responsible for making all major economic decisions would be created. Essentially, the Fed was created because politicians, who face elections and public pressure, couldn’t be relied upon to make unpopular decisions when needed for the long-term economy.
Although the Fed is designed to be an autonomous body, separate from political influence, it still has accountability to the US government (and thereby US voters).
The President is responsible for appointing the Fed Chair and the seven Governors of the Federal Reserve Board, subject to confirmation by the Senate.
Each Governor serves a 14-year term, and the Chair serves a four-year term. The Governors' terms are staggered to prevent any single administration from being able to change the entire board overnight.
Beyond this “main” board, there are twelve regional Federal Reserve Banks that operate across the country. Their presidents are appointed by private-sector boards and approved by the Fed's seven Governors. Five of these presidents vote on interest rates at any given time, alongside the seven Governors.
This creates a decentralised structure where no single person or political party can dictate monetary policy. Changing the Fed's direction requires consensus across multiple appointees from different administrations.
The case for Fed independence: Nixon, Burns, and the inflation hangover
The strongest argument for keeping the Fed independent comes from Nixon’s time as president in the 1970s.
Nixon pressured Fed Chair Arthur Burns to keep interest rates low in the lead-up to the 1972 election. Burns complied, and Nixon won in a landslide. Over the next decade, unemployment and inflation both rose simultaneously (commonly referred to now as “stagflation”).
By the late 1970s, inflation exceeded 13 per cent, Nixon was out of office, and it was time to appoint a new Fed chair.
That new Fed chair was Paul Volcker. And despite public and political pressure to bring down interest rates and reduce unemployment, he pushed the rate up to more than 19 per cent to try to break inflation.
The decision triggered a brutal recession, with unemployment hitting nearly 11 per cent.
But by the mid-1980s, inflation had dropped back into the low single digits.
Pre-Volcker era inflation vs Volcker era inflation | FRED
Volcker stood firm where non-independent politicians would have backflipped in the face of plummeting poll numbers.
The “Volcker era” is now taught as a masterclass in why central banks need independence. The painful medicine worked because the Fed could withstand political backlash that would have broken a less autonomous institution.
Are other central banks independent?
Nearly every major developed economy has an independent central bank. The European Central Bank, Bank of Japan, Bank of England, Bank of Canada, and Reserve Bank of Australia all operate with similar autonomy from their governments as the Fed.
However, there are examples of developed nations that have moved away from independent central banks.
In Turkey, the president forced its central bank to maintain low rates even as inflation soared past 85 per cent. The decision served short-term political goals while devastating the purchasing power of everyday people.
Argentina's recurring economic crises have been exacerbated by monetary policy subordinated to political needs. Venezuela's hyperinflation accelerated after the government asserted greater control over its central bank.
The pattern tends to show that the more control the government has over monetary policy, the more the economy leans toward instability and higher inflation.
Independent central banks may not be perfect, but they have historically outperformed the alternative.
Turkey’s interest rates dropped in 2022 despite inflation skyrocketing
Why do markets care about Fed independence?
Markets generally prefer predictability, and independent central banks make more predictable decisions.
Fed officials often outline how they plan to adjust policy and what their preferred data points are.
Currently, the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) index, Bureau of Labor Statistics (BLS) monthly jobs reports, and quarterly GDP releases form expectations about the future path of interest rates.
This transparency and predictability help businesses map out investments, banks to set lending rates, and everyday people to plan major financial decisions.
When political influence infiltrates these decisions, it introduces uncertainty. Instead of following predictable patterns based on publicly released data, interest rates can shift based on electoral considerations or political preference, which makes long-term planning more difficult.
The markets react to this uncertainty through stock price volatility, potential bond yield rises, and fluctuating currency values.
The enduring logic
The independence of the Federal Reserve is about recognising that stable money and sustainable growth require institutions capable of making unpopular decisions when economic fundamentals demand them.
Elections will always create pressure for easier monetary conditions. Inflation will always tempt policymakers to delay painful adjustments. And the political calendar will never align perfectly with economic cycles.
Fed independence exists to navigate these eternal tensions, not perfectly, but better than political control has managed throughout history.
That's why this principle, forged in financial panics and refined through successive crises, remains central to how modern economies function. And it's why debates about central bank independence, whenever they arise, touch something fundamental about how democracies can maintain long-term prosperity.
The ASX 200 closed out the 2025 financial year on a high, reaching a new intra-month peak of 8,592 in June and within touching distance of the all-time record. The index delivered a 1.4% total return for the month, rounding off a strong final quarter with a 9.5% return and locking in a full-year gain of 13.8% — its best performance since 2021.This strong finish all came down to the postponement of the Liberation Day tariffs. From the April 7 lows through to the end of the financial year, the ASX followed the rest of the world. Mid-cap stocks were the standout performers, beating both large and small caps as investors sought growth opportunities away from the extremes of the market. Among the sectors, Industrials outperformed Resources, benefiting from more stable earnings and supportive macroeconomic trends tied to infrastructure and logistics.But the clear winner was Financials, which contributed an incredible 921 basis points to the overall index return. CBA was clearly the leader here, dominating everything with 457 basis points on its own. Westpac, NAB, and others also played a role, but nothing even remotely close to CBA. The Industrials and Consumer Discretionary sectors made meaningful contributions, adding 176 and 153 basis points, respectively. While Materials, Healthcare, and Energy all lagged, each detracting around 45 to 49 basis points. Looking at the final quarter of the financial year, Financials were by far the biggest player again, adding 524 basis points — more than half the quarter’s total return of 9.5%. Apart from a slight drag from the Materials sector, all other parts of the market made positive contributions. Real Estate, Technology, and Consumer Discretionary followed behind as key drivers. Once again, CBA was the largest individual contributor, adding 243 basis points in the quarter, while NAB, WBC, and Macquarie Group added a combined 384 basis points. On the other side of the ledger, key underperformers included BHP, CSL, Rio Tinto, Treasury Wine Estates, and IDP Education, which all weighed on quarterly performance.One of the most defining features of the 2025 financial year was the dominance of price momentum as a market driver — something we as traders must be aware of. Momentum strategies far outpaced more traditional, fundamental-based approaches such as Growth, Value, and Quality. The most effective signal was a nine-month momentum measure (less the most recent month), which delivered a 31.2% long-short return. The more commonly used 12-month price momentum factor was also highly effective, returning 23.6%. By contrast, short-term reversals buying last month’s losers and selling last month’s winners was the worst-performing approach, with a negative 16.4% return. Compared to the rest of the world, the Australian market was one of the strongest trades for momentum globally, well ahead of both the US and Europe, despite its relatively slow overall performance.Note: these strategies are prone to reversal, and in the early days of the new financial year, there has been a notable shift away from momentum-based trading to other areas. Now is probably too early to say whether this marks a sustained change, but it cannot be ignored, and caution is always advised.The second big story of FY26 will be CBA. CBA’s growing influence was a key story of FY25. Its weight in the index rose by an average of 2.1 percentage points across the year, reaching an average of 11.5% by June. That helped push the spread between the Financials and Resources sectors to 15.8 percentage points — the widest gap since 2018. Despite the strong cash returns, market valuations are eye-watering; at one point during June, CBA became the world’s most expensive bank on price metrics. The forward price-to-earnings multiple now sits at 18.9 times. This is well above the long-term average of 14.7 and higher than the 10-year benchmark of 16.1. Meanwhile, the dividend yield has slipped to 3.4%, down from the historical average of 4.4%. Earnings momentum remains soft, with FY25 growth estimates still tracking at 1.4%, and FY26 forecast at a moderate 5.4%. This suggests that recent gains have come more from expanding valuation multiples than from actual earnings upgrades, making the August reporting date a catalyst day for it and, by its size, the market as a whole.On the macro front, attention now turns to the Reserve Bank of Australia. The central bank cut the cash rate by 25 basis points to 3.6% at its July meeting. Recent commentary from the RBA has taken on a more dovish tone, with benign inflation data and ongoing global uncertainty expected to outweigh the strength of the labour market. The RBA appears to be steering toward a neutral policy stance, and markets will be watching for further signals on how that shift will be managed. Recent economic data has been mixed. May retail sales were weaker than expected, while broader household spending indicators held up slightly better. Building approvals saw a smaller-than-hoped-for bounce, employment remains strong, but productivity is low. Inflation is now at a 3-year low and falling; all this points to underlying support from the RBA’s easing bias both now and into the first half of FY26.As we move into FY26, the key questions are:
Can fundamentals wrestle back control over momentum?
Will earnings growth catch up to price to justify valuations?
How will policy decisions from the RBA and other central banks shape investor sentiment in an ever-volatile world?
While the early signs suggest a possible rotation, the jury is still out on whether this marks a new phase for the Australian market or just a brief pause in the rally that defined FY25.
While recent data has shown core inflation moderating, core PCE is on track to average below target at just 1.6% annualised over the past three months.Federal Reserve Chair Jerome Powell made clear that concerns about future inflation, especially from tariffs, remain top of mind.“If you just look backwards at the data, that’s what you would say… but we have to be forward-looking,” Powell said. “We expect a meaningful amount of inflation to arrive in the coming months, and we have to take that into account.”While the economy remains strong enough to buy time, policymakers are closely monitoring how tariff-related costs evolve before shifting policy. Powell also stated that without these forward-looking risks, rates would likely already be closer to the neutral rate, which is a full 100 basis points from current levels.
2. The Unemployment Rate anchor
Powell repeatedly cited the 4.2% unemployment rate during the press conference, mentioning it six times as the primary reason for keeping rates in restrictive territory. At this level, employment is ahead of the neutral rate.“The U.S. economy is in solid shape… job creation is at a healthy level,” Powell added that real wages are rising and participation remains relatively strong. He did, however, acknowledge that uncertainty around tariffs remains a constraint on future employment intentions.If not for a decline in labour force participation in May, the unemployment rate would already be closer to 4.6%. Couple this with the continuing jobless claims ticking up and hiring rates subdued, risks are building around labour market softening.
3. Autumn Meetings are Live
While avoiding firm forward guidance, Powell hinted at a timeline:“It could come quickly. It could not come quickly… We feel like the right thing to do is to be where we are… and just learn more.”This suggests the Fed will remain on hold through the July meeting, using the summer to assess incoming data, particularly whether tariffs meaningfully push inflation higher. If those effects prove limited and unemployment begins to rise, the stage could be set for a rate cut in September.
Three data levers dominate the US markets in February: growth, labour and inflation. Beyond those, policy communication, trade headlines and geopolitics can still matter, even when they are not tied to a scheduled release date.
Growth: business activity and trade
Early to mid-month indicators provide a read on whether US momentum is stabilising or softening into Q1.
Key dates
Advance monthly retail sales: 10 Feb, 8:30 am (ET) / 11 Feb, 12:30 am (AEDT)
Industrial Production and Capacity Utilisation: 18 Feb, 9:15 am (ET) / 19 Feb, 1:15 am (AEDT)
International Trade in Goods and Services: 19 Feb, 8:30 am (ET) / 20 Feb, 12:30 am (AEDT)
What markets look for
Markets will be watching new orders and output trends in PMIs to gauge underlying demand momentum. Export and import data will offer insights into global trade flows and domestic consumption patterns. Traders will also assess whether manufacturing and services sectors remain in expansionary territory or show signs of contraction.
Market sensitivities
Stronger growth can be associated with higher yields and a firmer USD, though inflation and policy expectations often dominate the rate response.
Softer activity can be associated with lower yields and improved risk appetite, depending on inflation, positioning, and broader risk conditions.
Labour conditions remain a direct input into rate expectations. The monthly NFP report, alongside the weekly jobless claims released every Thursday, is typically watched for signs of cooling or renewed tightness.
Key dates
Employment Situation (nonfarm payrolls, unemployment, wages): 6 Feb, 8:30 am (ET) / 7 Feb, 12:30 am (AEDT)
What markets look for
Markets will focus on headline payrolls to assess the pace of job creation, the unemployment rate for signals of labour market slack, and average hourly earnings as a gauge of wage pressures. A gradual cooling can support the idea that wage pressures are easing. Persistent tightness may push out expectations for policy easing.
Market sensitivities
Payroll surprises frequently move Treasury yields and the USD quickly, with knock-on effects for equities and commodities.
Inflation releases remain a key input into expectations for the Fed’s policy path.
Key dates
Consumer Price Index (CPI): 11 Feb, 8:30 am (ET) / 12 Feb, 12:30 am (AEDT)
Personal Income and Outlays, including the PCE price index): 20 Feb, 8:30 am (ET) / 21 Feb, 12:30 am (AEDT)
Producer Price Index (PPI): 27 Feb, 8:30 am (ET) / 28 Feb, 12:30 am (AEDT)
What markets look for
Producer prices can act as a pipeline signal. CPI and the PCE price index can help confirm whether inflation pressures are broadening or fading at the consumer level.
How rates and the USD can react
Cooling inflation can support lower yields and a softer USD, though market reactions can vary.
Sticky inflation can keep upward pressure on yields and financial conditions, especially if it shifts policy expectations.
There is no scheduled February FOMC meeting, but speeches and other Fed communication, as well as the minutes cycle from prior meetings, can still influence expectations around the policy path. Without a decision event, markets often react to shifts in tone, or renewed emphasis on inflation persistence and labour conditions.
Trade and geopolitics
Trade flows and energy markets can remain secondary, and the risk profile is typically headline-driven rather than linked to scheduled releases.
The Office of the United States Trade Representative has published fact sheets and policy updates (including on US-India trade engagement) that may occasionally influence sector and supply-chain sentiment at the margin, depending on the substance and market focus at the time.
Separately, volatility tied to Middle East developments and any impact on energy pricing can filter into inflation expectations and bond yields. Weekly petroleum market data from the US Energy Information Administration is one input that markets often monitor for near-term signals.
Every four years, the Olympics does something markets understand very well: it concentrates attention. And when attention concentrates, so do headlines, narratives, positioning… and sometimes, price.
The Olympics isn’t just “two weeks of sport.” For traders, it’s a two-week global marketing and tourism event, delivered in real time, often while Australia is asleep.
So, let’s make this useful.
Scheduled dates: Friday 6 February to Sunday 22 February 2026 Where: Milan, Cortina d’Ampezzo, and alpine venues across northern Italy
What matters (and what doesn’t)
Matters
Money moving early: Infrastructure, transport upgrades, sponsorship, media rights and tourism booking trends.
Narrative amid liquidity: Themed trades can run harder than fundamentals, especially when volume shows up but can also reverse quickly.
Earnings language: Traders often watch whether companies start referencing demand, bookings, ad spend, or guidance tailwinds.
Doesn’t
Medal counts (controversial statement, I know).
Why the Olympics matter to markets
The Olympics are not just two weeks of sport. For host regions, they often reflect years of planning, investment and marketing and then all of that gets shoved into one concentrated global media moment. That’s why markets pay attention, even when the fundamentals haven’t suddenly reinvented themselves.
Here are a few themes host regions may see. Outcomes vary by host, timing, and the macro backdrop.
Theme map: where headlines usually cluster
Construction and materials Logistics upgrades, transport links, and “sustainable” builds.
Luxury and tourism Milan’s fashion-capital status starts turning into demand well before opening night.
Media and streaming Advertising increases as audiences surge and platforms cash in.
Transport and travel Airlines, hotels and travel tech riding the volume, and the expectations.
For Australian-based traders, the key idea is exposure, not geography. Italian listings aren’t required to see the theme while simultaneously, some people look for ASX-listed companies whose earnings may be linked to similar forces (travel demand, discretionary spend). The connection is not guaranteed. It depends on the business, the numbers and the valuation.
The ASX shortlist
The ASX shortlist is simply a way to organise the local market by exposure, so you can see which parts of the index are most likely to pick up the spillover. It is not a forecast and it is not a recommendation, it is a framework for tracking how a narrative moves from headlines into sector pricing, and for separating genuine theme exposure from names that are only catching the noise.
Wesfarmers (WES): broad retail exposure that gives a read on the local consumer.
Flight Centre (FLT): may offer higher exposure to travel cycles across retail and corporate.
Corporate Travel Management (CTD): business travel sensitivity, and it often reacts to conference and event demands.
The Aussie toolkit
The Olympics compresses attention, and when attention compresses, a handful of instruments tend to register it first while everything else just picks up noise. The whole point here is monitoring and discipline, not variety.
FX: the fastest headline absorber
Examples: EUR/USD, EUR/AUD, with AUD/JPY often watched as broader risk-sentiment signals. What it captures: how markets are pricing European optimism, global risk appetite, and where capital is leaning in real time
Index benchmarks: the sentiment dashboard
Examples (index level): Euro Stoxx 50, DAX, FTSE, S&P 500. What it can capture: whether a headline is broad enough to influence wider positioning, or whether it stays contained to a narrow theme.
Commodities: second order, often the amplifier
Examples: copper (industrial sensitivity), Brent/WTI (energy and geopolitics), gold (risk/uncertainty). What it can capture: the bigger drivers (USD, rates, growth expectations, weather and geopolitics) with the Olympics usually acting as the wrapper rather than the engine.
Put together, this is not a prediction, and it is not a shopping list. It is a compact map of where the Olympics story is most likely to show itself first, where it might spread next, and where it sometimes shows up late, after everyone has already decided how they feel about it.
Your calendar is not Europe’s calendar
For Aussie traders, the Olympics is a two-week, overnight headline cycle. Much of the “live” information flow is likely to land during the European and US sessions. However, there are three windows to keep in mind.
Watch this space.
In the next piece, we’ll build the Euro checklist and map the volatility windows around Milano–Cortina so you can see when the market is actually pricing the story, and when it is just reacting to noise.
For over 110 years, the Federal Reserve (the Fed) has operated at a deliberate distance from the White House and Congress.
It is the only federal agency that doesn’t report to any single branch of government in the way most agencies do, and can implement policy without waiting for political approval.
These policies include interest rate decisions, adjusting the money supply, emergency lending to banks, capital reserve requirements for banks, and determining which financial institutions require heightened oversight.
The Fed can act independently on all these critical economic decisions and more.
But why does the US government enable this? And why is it that nearly every major economy has adopted a similar model for their central bank?
The foundation of Fed independence: the panic of 1907
The Fed was established in 1913 following the Panic of 1907, a major financial crisis. It saw major banks collapse, the stock market drop nearly 50%, and credit markets freeze across the country.
At the time, the US had no central authority to inject liquidity into the banking system during emergencies or to prevent cascading bank failures from toppling the entire economy.
J.P. Morgan personally orchestrated a bailout using his own fortune, highlighting just how fragile the US financial system had become.
The debate that followed revealed that while the US clearly needed a central bank, politicians were objectively seen as poorly positioned to run it.
Previous attempts at central banking had failed partly due to political interference. Presidents and Congress had used monetary policy to serve short-term political goals rather than long-term economic stability.
So it was decided that a stand-alone body responsible for making all major economic decisions would be created. Essentially, the Fed was created because politicians, who face elections and public pressure, couldn’t be relied upon to make unpopular decisions when needed for the long-term economy.
Although the Fed is designed to be an autonomous body, separate from political influence, it still has accountability to the US government (and thereby US voters).
The President is responsible for appointing the Fed Chair and the seven Governors of the Federal Reserve Board, subject to confirmation by the Senate.
Each Governor serves a 14-year term, and the Chair serves a four-year term. The Governors' terms are staggered to prevent any single administration from being able to change the entire board overnight.
Beyond this “main” board, there are twelve regional Federal Reserve Banks that operate across the country. Their presidents are appointed by private-sector boards and approved by the Fed's seven Governors. Five of these presidents vote on interest rates at any given time, alongside the seven Governors.
This creates a decentralised structure where no single person or political party can dictate monetary policy. Changing the Fed's direction requires consensus across multiple appointees from different administrations.
The case for Fed independence: Nixon, Burns, and the inflation hangover
The strongest argument for keeping the Fed independent comes from Nixon’s time as president in the 1970s.
Nixon pressured Fed Chair Arthur Burns to keep interest rates low in the lead-up to the 1972 election. Burns complied, and Nixon won in a landslide. Over the next decade, unemployment and inflation both rose simultaneously (commonly referred to now as “stagflation”).
By the late 1970s, inflation exceeded 13 per cent, Nixon was out of office, and it was time to appoint a new Fed chair.
That new Fed chair was Paul Volcker. And despite public and political pressure to bring down interest rates and reduce unemployment, he pushed the rate up to more than 19 per cent to try to break inflation.
The decision triggered a brutal recession, with unemployment hitting nearly 11 per cent.
But by the mid-1980s, inflation had dropped back into the low single digits.
Pre-Volcker era inflation vs Volcker era inflation | FRED
Volcker stood firm where non-independent politicians would have backflipped in the face of plummeting poll numbers.
The “Volcker era” is now taught as a masterclass in why central banks need independence. The painful medicine worked because the Fed could withstand political backlash that would have broken a less autonomous institution.
Are other central banks independent?
Nearly every major developed economy has an independent central bank. The European Central Bank, Bank of Japan, Bank of England, Bank of Canada, and Reserve Bank of Australia all operate with similar autonomy from their governments as the Fed.
However, there are examples of developed nations that have moved away from independent central banks.
In Turkey, the president forced its central bank to maintain low rates even as inflation soared past 85 per cent. The decision served short-term political goals while devastating the purchasing power of everyday people.
Argentina's recurring economic crises have been exacerbated by monetary policy subordinated to political needs. Venezuela's hyperinflation accelerated after the government asserted greater control over its central bank.
The pattern tends to show that the more control the government has over monetary policy, the more the economy leans toward instability and higher inflation.
Independent central banks may not be perfect, but they have historically outperformed the alternative.
Turkey’s interest rates dropped in 2022 despite inflation skyrocketing
Why do markets care about Fed independence?
Markets generally prefer predictability, and independent central banks make more predictable decisions.
Fed officials often outline how they plan to adjust policy and what their preferred data points are.
Currently, the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) index, Bureau of Labor Statistics (BLS) monthly jobs reports, and quarterly GDP releases form expectations about the future path of interest rates.
This transparency and predictability help businesses map out investments, banks to set lending rates, and everyday people to plan major financial decisions.
When political influence infiltrates these decisions, it introduces uncertainty. Instead of following predictable patterns based on publicly released data, interest rates can shift based on electoral considerations or political preference, which makes long-term planning more difficult.
The markets react to this uncertainty through stock price volatility, potential bond yield rises, and fluctuating currency values.
The enduring logic
The independence of the Federal Reserve is about recognising that stable money and sustainable growth require institutions capable of making unpopular decisions when economic fundamentals demand them.
Elections will always create pressure for easier monetary conditions. Inflation will always tempt policymakers to delay painful adjustments. And the political calendar will never align perfectly with economic cycles.
Fed independence exists to navigate these eternal tensions, not perfectly, but better than political control has managed throughout history.
That's why this principle, forged in financial panics and refined through successive crises, remains central to how modern economies function. And it's why debates about central bank independence, whenever they arise, touch something fundamental about how democracies can maintain long-term prosperity.
