'All In' podcast, 22 December 2025
The Federal Reserve and the pre‑euro Bundesbank were both created to keep politics at arm’s length, yet the American institution ended up far more insulated. The Fed’s independence is written into the Federal Reserve Act, which declares the bank “independent of the executive branch.” Its governing body, the Federal Open Market Committee, draws its members from a pool of governors appointed by the President and confirmed by the Senate for fourteen‑year terms. Those staggered, long tenures stretch well beyond any single administration, making it impossible for a change of government to reshape monetary policy overnight. Germany’s Bundesbank, while formally independent under the Basic Law, appointed its president and directors for eight‑year terms on the recommendation of the government, a process that left the bank more exposed to partisan influence.
Financial autonomy further separates the two. The Fed funds its operations almost entirely from the interest it earns on its securities portfolio, sending any surplus back to the Treasury after covering expenses. It receives no annual appropriations, so the Treasury cannot withhold money to sway policy. The Bundesbank, by contrast, relied partly on state‑allocated funds, tying its budget to the federal budget and giving the government a subtle lever of pressure, especially during fiscal crises such as the costly reunification of the early 1990s.
Transparency has also played a crucial role. Since the 1990s the Fed has institutionalised forward guidance: regular press conferences, published minutes, and a quarterly monetary policy report to Congress. This openness builds market credibility and narrows the space for ad‑hoc political demands. The Bundesbank’s reporting, though thorough, lacked a systematic forward‑guidance regime, leaving markets and politicians freer to speculate about policy moves and increasing the temptation for political actors to intervene.
Historical stress tests illustrate the practical impact of these structural differences. In the late 1970s Paul Volcker raised the federal funds rate above twenty percent, a move that was politically painful but decisive in breaking the Great Inflation. Despite vocal criticism from the Carter administration, the Fed’s statutory independence and long‑term mandates allowed it to stay the course. The Bundesbank under Karl Kreissl also raised rates sharply, yet the coalition government’s frequent parliamentary questioning forced the bank to moderate its stance more often. During the Reagan years, President Reagan publicly urged lower rates to spur growth. Volcker resisted, emphasizing price stability, while the Bundesbank faced repeated requests to align its policy with the Social‑Liberal coalition’s growth agenda, leading to compromises that diluted its anti‑inflation focus. The reunification of Germany created a massive fiscal shock; the Bundesbank had to coordinate closely with fiscal authorities to ensure liquidity, opening channels for political input. The Fed, dealing with a domestic recession but no comparable political‑fiscal shock, could act unilaterally.
Legal sanctions reinforce the Fed’s shield. The Federal Reserve Act provides for the removal of governors for cause, and Senate confirmation serves as a political check on misconduct. The Bundesbank’s framework lacked comparable punitive mechanisms, leaving it vulnerable to informal pressure through public criticism, parliamentary hearings and budget negotiations.
When former President Donald Trump repeatedly called for lower rates, the Fed’s response—rooted in data‑driven policy and protected by its institutional design—was to rebuff the demand as an inappropriate attempt at influence. Had a similar demand been directed at the Bundesbank in the 1990s, it would likely have found a more receptive audience within the German political establishment, reflecting the narrower gap between monetary and fiscal authorities at that time.
In sum, the United States built a central bank with deeper, more resilient walls against political pressure: longer, staggered terms, self‑financing budgets, codified independence and a culture of transparent communication. Germany’s pre‑euro central bank, while independent in principle, operated within a more porous environment, making the Fed’s resistance to political meddling appear less surprising than it would have been for its German counterpart. contact: 4xi0@proton.me