In the country club atmosphere of Sintra, Portugal last week, the world’s leading central bankers set out to explain their monetary policies, rather than signal any changes.
They were in no doubt they were the right people to deliver monetary messages to the public. I am not suggesting any arrogance. Andrew Bailey, Bank of England governor, urged humility, because, he noted, central bankers exert real power and “many people think we’re not humble”. (59 mins 40 seconds)
Asked what it feels like to be constantly berated by the US president, Federal Reserve chair Jay Powell got a huge ovation when he said he was “focused on just doing my job” in a non-political way. Delivered with sincerity and humility, it was a great applause line. He also used it in April. For the audience, it was perfection.
While Donald Trump was posting characteristic hissy fits about monetary policy errors on social media, the US data supported Powell’s cautious stance. A healthy labour market with a small decline in unemployment to 4.1 per cent is not a backdrop that requires urgent interest rate cuts.
Take a look at the “Sahm rule” indicator, which has normally identified the start of a US recession. In June it recorded its lowest reading since the summer of 2023 at 0.17, far below the recessionary trigger point.
It was a good week for Powell.
A random US messenger
It was not such a good week for some economists. A regular and persistent error they make is using logic and reasoning to explain the US president’s economic beliefs.
On the night before the jobs figures were published, Trump took to social media to rant again about Powell being slow to cut rates, adding that “‘Too Late’ should resign immediately!!!”. The president gets sight of important economic statistics on the evening before they are published.
Economists know better than to confuse correlation and causation, but quite a few inferred a causal relationship between the jobs data and Trump’s social post. To give just two examples, here are comments from Justin Wolfers and Paul Donovan. The next morning’s data proved them wrong.
In the future, it’s best not to attach any particular weight to the timing or content of Trump’s social media activity.
An inconsistent US messenger
If that’s the rule for Trump, we are learning that the rule for his Treasury secretary Scott Bessent is his monetary message will soon change.
Go back to February. Then, when speaking about the Fed, Bessent pledged to “only talk about what they’ve done and not what they should do”. He said Trump wanted to lower the 10-year US Treasury yield and “is not calling for the Fed to lower rates” (from 10 mins). A day later, those words were shown to be foolhardy when Trump explicitly called on the Fed to do just that.
When asked about the Fed’s monetary independence in April, Bessent said it was “a jewel box that’s got to be preserved”.
Late last week, he took a sledgehammer to all of those gemstones. Regarding the Fed’s next monetary policy meeting, he said “if they want to make a mistake here and not cut, then that’s fine . . . And I just think if they don’t cut then perhaps a cut in September will be bigger” (13 mins).
He refused to rule himself out as a contender for Fed chair while still staying on as Treasury secretary, a combination that could not possibly be seen as preserving monetary independence (15 mins 50 seconds).
And he suggested Powell and most of the FOMC were being political in not voting for interest rate cuts. He pointed to a large “dispersion” in the FOMC’s personal projections for interest rates, between loose monetary policy expectations from Trump-appointed committee members and tighter expectations from others. “I’ll let you read into that what you want,” he concluded (15 mins, 20 seconds).
Email me about how you read into the evidence above: chris.giles@ft.com.
The messenger matters
One of the main purposes of central banker gatherings is to put real world policymaking to the test against some of the best academic insights. Given the importance of communication and the troubles in the US, it was little surprise the winner of the ECB’s Young Economist Prize went to Alena Wabitsch of Oxford university for her spectacularly well-timed paper, which quantified how much the messenger matters.
Her work looked at the transfer of leadership at the ECB in 2019 from Mario Draghi to Christine Lagarde, examining whether the change from an Italian to a French central bank boss affected how the monetary message landed. Data from tweets and newspapers shows interest in European central banking rose in France and fell in Italy after the switch, suggesting people listen more to those of their own nationality.
Wabitsch used large language models and 8mn tweets to see whether individual Twitter users became more positive about the ECB after a policy meeting to measure how willing different nationalities were to accept the central bank’s narrative.
Compared with the average European (which seems to be someone from Germany in this case), Italians who tweet about the ECB become more positive after a policy meeting, but less under Lagarde than Draghi. The French tend to be sceptical and disappointed relative to the average, but less so under Lagarde. The Spanish are rather similar to those in France.
As Wabitsch put it, “the messenger matters”. The public prefers to hear from someone they identify with than someone who seems foreign.
It is not just a European thing. The Reserve Bank of Australia hired a well-regarded BoE official, Andrew Hauser, to be its deputy governor in 2024. Being quite patrician, Hauser soon found that many in Australia disliked monetary messages coming from someone perceived as a former colonial master, however unfair that might be. “Haughty” was one of the more polite reactions to an early speech; former Labor minister Stephen Conroy called him a “complete wanker” and a “tosser” (30 seconds).
Outsiders will therefore find it difficult to explain tough decisions. It can happen within countries too. I have previously highlighted US research showing that Democrats perceive the Fed as Republican and vice versa. Worse, people trust the Fed when they think it is “one of us” rather than “one of them”.
Trump’s social media posts and Bessent’s politicisation of the Fed therefore make it appear as an outsider to a large proportion of the US population. The lack of support inevitably makes explaining the nuances of monetary policy decisions more difficult. It damages the institution greatly.
What I’ve been reading and watching
A chart that matters
There have been and will be many tariff announcements coming from the US over the next few days, as the 90-day pause from Trump’s so-called “reciprocal tariffs” runs out. New rates and deadlines are being set.
Future tariff levels are a moveable feast because Trump likes to change his mind. Keeping up is difficult but the FT’s experts are here to help, collating all the data on tariffs imposed so far on a special page.
The chart below, using data up to May, shows China bore the brunt of the initial tariffs, with an effective rate of almost 50 per cent. The rest of the world has seen its effective tariff rate rise from around 1 per cent to 6 per cent. Keep watching.
Central Banks is edited by Harvey Nriapia
