written by: Želimir Okilj and Mara Stevanović

PIMCO: Undermining the independence of the Fed is very bad for markets

What is PIMCO?

Pacific Investment Management Company (PIMCO) is an American investment company specialized in bonds and ranks among the largest global investment firms. PIMCO manages assets of about 2.1 trillion US dollars, which makes it a leading player in the global financial market.

Warning about the independence of the Federal Reserve

PIMCO has recently warned that any attempt to undermine the independence of the US central bank (the Fed) would be extremely harmful to markets. The Chief Investment Officer of PIMCO, Dan Ivascyn, stated that investors attach great importance to the independence of the central bank and that undermining that independence would be “very bad for markets.” This statement was made at a moment of increased political pressure on the Fed in the United States.

Why do markets insist on the Fed’s independence?

The independence of the central bank enables monetary decisions to be made based on economic indicators and long‑term goals, without short‑term political influences. Such autonomy maintains investor confidence – if the Fed succumbed to political pressures, the credibility of monetary policy would be undermined. Experts warn that undermining the independence of the Fed would lead to a loss of trust, major disruptions, and volatility in global financial markets. The Federal Reserve and the US dollar are pillars of the world financial system, so a loss of confidence in them would cause serious economic shocks around the world.

Indirect impact on Balkan markets

Although it acts far away, a crisis of confidence in the Fed could be felt in the Balkans. In conditions of global uncertainty, investors usually reduce exposure to riskier markets. That means a smaller inflow of foreign investments and a rise in the risk premium, which raises borrowing interest rates for companies and states. There may also be pressures on the exchange rates of local currencies if capital withdrawal occurs, which would make imports more expensive and increase financial instability. Undermining the independence of the Fed would not affect only the USA – negative effects would spill over into the financial markets of the Balkans through investment flows, cost of capital, and currency stability.

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