The matter of central bank independence

Summary

Marketplace Morning Report: The Matter of Central Bank Independence
Episode Released on July 22, 2025

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Introduction

In this episode of the Marketplace Morning Report, host David Brancaccio delves into two significant topics shaping the economic landscape: the independence of central banks in the United States and the evolving dynamics of U.S.-Canada relations impacting travel and local economies. Through insightful discussions and expert analysis, the episode provides listeners with a comprehensive understanding of these pressing issues.

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Central Bank Independence Under Scrutiny

Pressure on the Federal Reserve

The episode opens with David Brancaccio addressing recent political pressures on the Federal Reserve (Fed), specifically highlighting actions taken by Bill Pulte, the Trump administration's chief of the Federal Housing Finance Agency. Pulte has been actively criticizing Fed Chair Jerome Powell, even suggesting Powell's potential resignation. Despite Pulte's claims, Powell reaffirmed his position in a statement released that morning.

Senator Elizabeth Warren's Criticism

Democratic Senator Elizabeth Warren, the ranking member of the Senate Banking Committee, has taken a firm stance against Pulte's actions. In a letter, she condemned Pulte for posting or reposting over 100 items about Powell in a single month, labeling it as "abnormal behavior." Warren urged Pulte to disclose his schedule to ensure he is fulfilling his duties overseeing federally backed mortgages and housing.

Expert Insight: Karen Petru on Fed Accountability

David is joined by Karen Petru, co-founder and managing partner of Federal Financial Analytics, to discuss the implications of these developments. Petru emphasizes the inappropriateness and ineffectiveness of using job security as leverage to influence the Fed's monetary policy decisions. She differentiates between constructive criticism and personal attacks, advocating for accountability without compromising the Fed's independence.

• Quote:
  "Putting Jay Powell's job on the line over monetary policy is just inappropriate and, I hope, ineffective."
  (02:07) - Karen Petru

Historical Context and Economic Impacts

Petru provides a historical perspective, referencing the Fed's policies post-2013 following the Great Financial Crisis. She argues that the prolonged low-interest-rate environment contributed to significant economic inequality. While stock markets thrived, the benefits were disproportionately captured by the wealthy, exacerbating the wealth gap.

• Quote:
  "Starting in about 2013, after the Great financial crisis ebbed, the Fed kept rates far too low, far too long. That had a dramatic impact on economic inequality."
  (03:13) - Karen Petru

The Balance of Policy and Accountability

The discussion highlights the delicate balance between maintaining central bank independence and ensuring accountability for policy decisions. Petru advocates for mechanisms to hold the Fed accountable for its mistakes without subjecting it to political coercion, reinforcing the importance of its role in combating inflation and supporting economic stability.

• Quote:
  "There is nothing worse for most American households than inflation. ...we have to respect that's a very important goal."
  (04:45) - Karen Petru

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U.S.-Canada Relations and the Impact on Travel and Local Economies

Shifting Travel Patterns

Transitioning from monetary policy, David Brancaccio introduces a report by Russ McNamara from Detroit Public Radio, focusing on the strained U.S.-Canada relationship and its repercussions on travel and local economies along the extensive 5,500-mile border.

Decline in U.S.-Bound Travel

Typically, Canadians contribute approximately $20 billion to the U.S. economy through travel. However, recent tensions have led to a noticeable shift in travel preferences, with a 10% increase in flight bookings to Europe and a nearly 25% decrease in bookings to the U.S. compared to the previous year.

• Quote:
  "Flight bookings overseas have gone up 10%, and bookings to the US have dropped nearly a quarter compared to this time last year."
  (07:21) - Russ McNamara

Personal Stories and Business Impact

Individuals like Tara Elliott, who usually visits family in the U.S. multiple times a year, are postponing their trips due to the current climate. Similarly, businesses along the border, such as upscale lodges in Detroit, are experiencing a downturn. Michelle Soucis of The Elmore Lodge reports a 15% decline in business this spring, attributing it to reduced Canadian tourism.

• Quote:
  "Local public radio stations across the country will struggle to acquire and broadcast Marketplace. That has a big impact on our bottom line."
  (Note: This quote seems misplaced in the transcript and likely belongs to a different section regarding public media funding.)

Efforts to Rebuild Trust

Travel agents like Kristen Bell are actively working to restore trust and encourage Americans to visit Canada, balancing the negative sentiments with efforts to mend the relationship. Despite the current uncertainty, there remains a commitment to fostering neighborly ties between the two nations.

• Quote:
  "Americans are looking to make amends by traveling to Canada."
  (08:37) - Russ McNamara

Economic Implications for Border Towns

The decline in border crossings, which saw a threefold decrease in June, directly impacts border towns’ economies. Businesses reliant on cross-border tourism are the first to feel the strain, highlighting the broader economic vulnerabilities tied to international relations.

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Conclusion

This episode of the Marketplace Morning Report underscores the critical importance of maintaining the independence of central banks to ensure stable and equitable economic policies. Simultaneously, it sheds light on how geopolitical tensions can ripple through local economies, particularly in regions heavily dependent on cross-border interactions. Through expert commentary and on-the-ground reporting, the episode provides listeners with a nuanced perspective on these intertwined economic issues.

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Notable Quotes

• "Putting Jay Powell's job on the line over monetary policy is just inappropriate and, I hope, ineffective."
  – Karen Petru (02:07)

• "Starting in about 2013, after the Great financial crisis ebbed, the Fed kept rates far too low, far too long. That had a dramatic impact on economic inequality."
  – Karen Petru (03:13)

• "There is nothing worse for most American households than inflation. ...we have to respect that's a very important goal."
  – Karen Petru (04:45)

• "Flight bookings overseas have gone up 10%, and bookings to the US have dropped nearly a quarter compared to this time last year."
  – Russ McNamara (07:21)

• "Americans are looking to make amends by traveling to Canada."
  – Russ McNamara (08:37)

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This comprehensive summary captures the essence of the episode, providing listeners with an in-depth understanding of the discussions surrounding central bank independence and the tangible effects of U.S.-Canada relations on travel and local economies.

Transcript

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[David Brancaccio]

A case for rethinking how central bankers manage the economy? I'm David Brancaccio in Los Angeles. One of the Trump administration's point people on hassling the chair of the Federal Reserve in the name of lower interest rates has been Bill Pulte, Trump's chief of the Federal Housing Finance Agency. Among Pulte's views, his claim that Jerome Powell is considering resigning. Now, Powell spoke this morning and did not resign. Meanwhile, Democratic Senator Elizabeth Warren, ranking member of the Senate Banking Committee, issued a letter calling out Pulte for spending time posting or reposting more than 100 items about Powell this month alone. Warren calls this abnormal behavior and urged Pulte to release his schedule to show if he's doing his job overseeing federally backed mortgages and housing trolling and counter trolling aside, there is the matter of the independence of America's central bank. Karen Petru, co founder of Federal Financial analytics in Washington, is a longtime Fed watcher. Morning, Karen.

[Karen Petru]

Morning.

[David Brancaccio]

Are you into this pressure by the president and his men to browbeat the head of the Fed into lowering interest rates under penalty of the man's job?

[Karen Petru]

No. We can talk about interest rates, but putting Jay Powell's job on the line over monetary policy is just inappropriate and, I hope, ineffective.

[David Brancaccio]

But you and I have talked over the years. I've read your books. You, Karen, have campaigned, written about, critiqued the Fed for policies that you think hurt real people. So when you heard Treasury Secretary Besant yesterday calling for for a review of how the Fed makes decisions, is that such a terrible idea?

[Karen Petru]

I think that's a good idea. But that's very different, I think, than the president trying to get Jay Powell to quit over one reason or another. And personal insults and attacks on the institution to try to make it accountable to the President so that the cost of the federal deficit isn't as large as it's going to be because of the actions the White House and Congress have been taking. That's different.

[David Brancaccio]

It's different. And we should always remind ourselves that done wrong, lowering interest rates at the wrong time can spark inflation, which everybody hates.

[Karen Petru]

Well, and that's one of the reasons the Fed is insufficiently unaccountable, because that's exactly what it did. Starting in about 2013, after the Great financial crisis ebbed, the Fed kept rates far too low, far too long. That had dramatic impact on economic inequality. Sure, the stock markets went up and up and up, but most Americans own very little, if any, stock. We made the rich richer. And Fed policy had way too much to do with that.

[David Brancaccio]

I mean, there's always been, at least in my professional career, an ongoing debate about central bank independence. We didn't directly elect these folks, and they are arguably the most powerful policy people in our lives in terms of economic policy.

[Karen Petru]

Well, they shouldn't be. That's the real problem with an unaccountable Fed. Starting in about 2008, what one quite good book on the Fed has called the Only Game in Town. The Fed should not be politically accountable for monetary policy, but it does need to be accountable for the mistakes it's made. As Secretary Besant rightly said, I'm just.

[David Brancaccio]

Thinking about the regular person around, you know, all of our kitchen tables, right? I'd like to pay less on credit cards and mortgages. If the Fed were to lower rates, I'd like my cat to cough up gold bars so I would be rich. But on the other hand, I don't want inflation because we have just been through that.

[Karen Petru]

There is nothing worse for most American households than inflation. Close to 70% of us are already live paycheck to paycheck. Inflation on top of that will be very destructive. That's what the Fed inarticulately, somewhat incompetently, but desperately, is finally, at long last, fighting against. They may not be doing it right, but we have to respect that's a very important goal.

[David Brancaccio]

Karen Petru is co founder and managing partner of Federal Financial Analytics. Her book is called Engine of the Fed and the Future of Wealth in America. Karen, always good to catch up.

[Karen Petru]

Appreciate it.

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[David Brancaccio]

Continue to negotiate tariffs, the relationship between the two countries is becoming increasingly poisoned, and that's affecting how many Canadians feel about traveling to the U.S. this affects tourism and economies along the 5,500 mile border. Detroit Public Radio's Russ McNamara has more.

[Russ McNamara]

Canadians are still traveling, just not where they're used to.

[David Brancaccio]

We're very busy. Travel is definitely not down.

[Russ McNamara]

That's Kristen Bell with Valenti Travel in Windsor, Ontario, just across the river from Detroit. In an average year, Canadians would spend about $20 billion in the U.S. but.

[David Brancaccio]

Now we send a lot of people to Europe.

[Russ McNamara]

Flight bookings overseas have gone up 10%, and bookings to the US have dropped nearly a quarter compared to this time last year. Tara Elliott of Windsor normally visits family in the US A couple times a year, but she won't make those trips right now.

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My aunts live in Michigan, my sister lives in Troy, Michigan. I have a sister who lives in Texas. I'm just not comfortable right now for now, until things I feel like settle down and I'd rather just stay over here.

[Russ McNamara]

Canadians are taking fewer road trips into the US Too. Border crossings were down by a third in June. That's the sixth consecutive month crossings have declined year over year. Unfortunately, border towns feel this first and our businesses are the ones who are absorbing the impact first. Michelle Soucis manages the Elmore, an all brick upscale lodge in midtown Detroit in the heart of the city's cultural and foodie scenes. He says his business is down 15% this spring and thinks that once the tariff chaos from the Trump administration dies down town, it's likely Canadians will return. However, we're gonna have to earn their trust again. Those efforts are already underway, says Kristen Bell, the travel agent. She has dual citizenship and says Americans are looking to make amends by traveling to Canada.

[David Brancaccio]

You know, we definitely have a certain amount of Americans who know where their neighbors and they want to be neighborly so we see that it's very nice to.

[Russ McNamara]

She says what's not so nice is the uncertainty that comes with the current U.S. canadian relationship. In Detroit, I'm Russ McNamara for Marketplace.

[David Brancaccio]

And in Los Angeles, I'm David Brancaccio. It's the Marketplace Morning Report from apm, American Public Media. Yeah, Federal funding for public media was just eliminated. And without federal funds, local public radio stations across the country will struggle to acquire and broadcast Marketplace. That has a big impact on our bottom line. So we're turning to you at this critical time. Individual donations are so important right now. Give to your local station. And if you can, please donate directly to Marketplace, go to marketplace.org donate and thank you.