Central bank independence may sound like an academic subject. But for Hong Kong, thanks to the US dollar peg, the effect of the US Federal Reserve’s independence can be very real, especially if it is being eroded. Where the US dollar lands, there goes the Hong Kong dollar.
Whichever way the court case turns out, it’s rightly seen as a direct challenge by the executive branch to the Fed’s institutional autonomy. Investors and policymakers the world over now fret about whether US monetary policy will be compromised. Given the intense rivalry between China and the United States, that is especially worrying for Hong Kong.
Undermining the laws and norms that guarantee Fed independence could unleash financial chaos. What will happen to the Hong Kong dollar is anyone’s guess.
Fed governor Christopher Waller, thought to be on Trump’s list to succeed Powell next year, has said he could back a jumbo rate cut at the next interest rate vote in mid-September. More of Waller’s colleagues may decide to play ball.
