Despite the independence of central banks, Donald Trump is trying to plant his influence in the US Federal Reserve. It is not odd for any president to choose candidates based on his preference and want the Fed to work with the government to produce positive economic growth; moreover, the independence of any central bank is always questioned because a government always has some power such as nomination power over the central bank in its country. However, in the US, the potential candidates who might be nominated by Donald Trump have raised much attention and critics because the two candidates are not qualified for this job based on their backgrounds and experiences.
There is one key and the most important character that a central bank must has, this is credibility. Central bank is not only the institute which set the basic rate, it is also the saver when an economic crisis comes. Central bank plays a role as a moderator in our economy that it does not want the economiy to grow above its sustainable rate and increase the bubbles but it does not want the economy to decline at a sharp rate; central bank wants to produce a growth trend which is sustainable with a reasonable inflation rate. This can only be achieved if the economy believes what the Fed says based on the current macroeconomic theories despite how the market forms its expectation. However, once the Fed cannot produce a credible guidance and does not have a clear goal, the market cannot produce any outcome which the Fed wants if it knows what it wants and this outcome is very likely to be unflavoured by the economy in both long run or short run, especially in a crisis.
Overall, choosing wrong people to central bank can damage the central bank’s credibility and cause ineffectiveness of the monetary policy.
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