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Resilience by Design: Federal Reserve Independence at 75
Published Date : January 29, 2026
“Things are strongest where they’re broken.” – Louise Penny
I began drafting this newsletter about the Federal Reserve in early January. The quote above is from an author I like, and at the time, it felt reflective but abstract. A few weeks later, it became far more literal when my dog injured his leg and suddenly required emergency surgery. With a new metal plate and a reinforced knee, the vet assured me that my dog would be back to normal and stronger than ever. “Things are strongest where they’re broken,” indeed.
To me, this quote is ultimately about resilience: the idea that we can adapt, gain insight, and improve when tested. In its more than 100-year history, the Federal Reserve has gone through periods of evolution that have helped shape the institutional framework governing monetary policy today. In that context, economic history suggests that central bank independence has played a meaningful role in maintaining long-term stability.
March 4, 2026, will mark the 75th anniversary of what I’ll call “Fed Independence Day.” On this date in 1951, an agreement called the “Treasury-Federal Reserve Accord” formally ended a period in which the Fed was effectively required to maintain low interest rates to help finance government debt. This agreement re-established the Fed’s operational independence, allowing it to conduct monetary policy as we know it today. While the Fed remains accountable to Congress and the public, it operates under a dual mandate of price stability and maximum employment. Fulfilling that mandate requires the flexibility to adjust policy in response to economic conditions, even when those actions may be unpopular.
History offers many clear lessons about what can happen when central bank independence erodes. Historically, elected officials have often favored lower interest rates, given their short-term effects on economic growth. In the United States during the 1970s, prolonged accommodative policy contributed to elevated inflation and economic volatility. Similar dynamics have played out more recently in international countries where central bank credibility weakened, often resulting in higher inflation, currency depreciation, and unanchored expectations.
And expectations matter. When market participants believe a central bank will act consistently to preserve price stability, inflation expectations tend to remain anchored. When that confidence erodes, long-term interest rates can rise as investors demand compensation for uncertainty, making economic stabilization more challenging. Restoring credibility can then become its own matter. Challenging central bank independence has the potential of having the opposite effect of its intended purpose, pushing borrowing costs higher rather than lower.
Despite recent debate about the Fed’s role, financial markets remained relatively calm through mid-January. That stability likely reflects confidence that the institutional framework supporting central bank independence will continue to function as designed. While Jerome Powell’s term as Chair ends in May 2026, he may choose to remain on the Board of Governors through 2028. Such continuity can slow the pace of leadership transition and reinforce policy stability. In addition, the Senate confirmation process for a new Fed Chair serves as an institutional safeguard, and recent bipartisan commentary suggests that leadership changes are subject to meaningful review. Finally, bond markets may also act as an external constraint, as a sustained rise in long-term yields would signal tighter financial conditions and could influence future policy considerations.
While no institution is without flaws, the Fed’s ability to independently pursue long-term economic stability has supported credibility, anchored expectations, and confidence in U.S. financial markets. Periods of scrutiny will always ebb and flow, but the case for underlying central bank independence remains as compelling today as it was 75 years ago. Institutions built to endure are often strengthened, not weakened, by periods of transition.
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