Bernanke's Warning... "US Fed Independence Threatened, Inflation Risk Greater Than Tariffs" [AEA 2025]

2025 AEA Annual Meeting
Former Fed Chair Ben Bernanke
"Trump's Second Term Inflation Factor Is Fed Independence Violation"
Tariffs, Immigration, and Tax Cuts Unlikely to Push Prices Up

Former U.S. Federal Reserve (Fed) Chairman Ben Bernanke warned that the biggest inflation risk under Donald Trump's second-term administration is the threat to the central bank's independence. Although policies such as tariff increases, illegal immigration bans, and tax cuts, announced about two weeks before Trump's inauguration on the 20th, could cause supply uncertainties, Bernanke believed that contrary to common expectations, the likelihood of these policies pushing up prices is low.

Ben Bernanke, former Chairman of the U.S. Federal Reserve (Fed). San Francisco - Photo by Haeyoung Kwon

At the '2025 American Economic Association (AEA) Annual Meeting' held from the 3rd to 5th in San Francisco, U.S. local time, Bernanke warned that if the Fed loses its independence under Trump's second term, "it would have a very negative impact on the market and could cause significant inflation."

Earlier, Trump had repeatedly expressed dissatisfaction with the Fed's high interest rate policy since his candidacy. As a result, concerns are growing that the Trump administration in its second term may pressure the monetary authorities to ease policies, and the Fed may fail to respond appropriately to the recently rebounding inflation.

Bernanke mentioned that his predecessor, Alan Greenspan, supported White House fiscal package negotiations during his tenure as Fed chairman, saying that such a thing would "never happen" under Trump's second term. He emphasized, "Maintaining the Fed's independence is very important," and stressed that "the Fed must explain the legitimacy of its policies to Congress and the public."

Professor Christina Romer of UC Berkeley, who attended the 'Inflation and Macroeconomics' session with Bernanke, also emphasized the importance of the Fed's independence. Romer said, "What we should fear is the threat to the Fed's independence," adding, "If (President-elect Trump) has various means to pressure the Fed, including dismissing Fed Chair Jerome Powell, it could cause great damage to the economy and bring significant inflation."

On the other hand, Bernanke predicted that the tariffs, immigration, and tax cut policies announced by Trump are unlikely to raise inflation significantly, contrary to the general expectations of many economists.

He said, "It is difficult to predict whether tariffs will be imposed temporarily for negotiation purposes or maintained permanently." He added, "There is a Fed report stating that although tariffs were raised in 2018 during Trump's first term, the tariff levels were not severe and did not require special responses," and forecasted, "Unless abnormal situations or geopolitical risks occur, tariffs will not drastically change the inflation trajectory."

Regarding the illegal immigration ban policy, he explained, "Immigration issues are also a slow and uncertain process," and "If the number of workers decreases, consumers will also decrease, so it will not affect the balance of aggregate demand and aggregate supply." Regarding fiscal policy, he analyzed, "There may be additional tax cuts or spending cuts, but they will not be major variables."

Regarding current U.S. inflation, Bernanke said, "An inflation rate of around 2.5% is close to the Fed's target of 2%, but there may be difficulties in the last mile." He explained that this is because lagging factors caused by supply shocks from COVID-19, such as housing rents and auto insurance, have not yet been resolved.

He also diagnosed during a meeting with Korean reporters that "the process of inflation reaching the target of 2% is progressing slowly."

Bernanke expressed opposition to calls to raise the inflation target from the current 2%. He emphasized, "To change the inflation target, we must first reach 2%," and said, "Damaging trust is unacceptable."

Known as "Helicopter Ben," Bernanke saved the global economy during the 2008 financial crisis through unconventional monetary policies such as quantitative easing. He argued that when the economy is struggling, it is necessary to stimulate it even by dropping money from helicopters. He was awarded the 2022 Nobel Prize in Economics for his contributions to the study of banks and financial crises. The American Economic Association held a separate session titled 'Ben Bernanke's Contributions to Economics' to honor his achievements at this event.