“And summer’s lease hath all too short a date.” As the Global North looks ahead to colder climes, Shakespeare’s remark on the fleeting nature of seasons resonated last week in two speeches that both suggest we are approaching the end of a political and economic summer. The order built in the past half century is straining, and its institutions no longer seem suited to the world they were built to govern.
The first speech was, for those into economics and monetary policy, the most hotly anticipated address of the year. At the Federal Reserve’s annual gathering in the rarified mountain air of Jackson Hole, Wyoming, chairperson Jerome Powell delivered what will almost certainly be his last speech at the event before stepping down in May.
It was characteristic Powell; measured, serious and carefully worded. He outlined the central bank’s predicament with clarity; a labour market visibly weakening, suggesting the need for lower interest rates, yet with inflation that remains uncomfortably elevated.
Powell duly gave a hint as to where the Fed leans. “Adjustment” may be required, he said, which is central banker code for rate cuts. Markets, expecting bland reassurance, were caught off guard. The dollar slid, government bond prices climbed, and equities staged a late-week rebound. Investors now assume that the Fed will cut rates in September and probably at the two meetings thereafter.
But the larger significance of Powell’s speech was not in its policy signal. It was in its finality. This was the last word of a Fed chair whose tenure embodied the old model of central banking; cautious, technocratic, and insulated from politics. That model is now in doubt. In most respects, this speech marked the closure of the era of Fed independence.
Donald Trump has made no secret of his loathing of Powell, whom he has dismissed as a “numbskull” for not bowing to pressure and cutting rates sooner. And while the Fed is notionally supported by structures that protect its independence, Trump’s record in office shows his willingness — and ability — to bend institutions to personal ends. He has already replaced the head of the Bureau of Labour Statistics with a loyalist, and nominated Stephen Miran to the Fed, an adviser who has argued that presidents should be able to dismiss central bankers at will. A Trump-aligned next chairperson of the Fed is all but assured.
Late on Monday he escalated his attacks to unprecedented levels, declaring he was firing Federal Reserve governor Lisa Cook “effective immediately”. Citing his powers under the US constitution and US law, he said that he had “sufficient reason” to believe she had made false statements on mortgage agreements.
Read more: What’s known about the legal premise for Trump’s effort to fire Fed’s Cook
Cook said in a statement that she would not resign.
“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” she said.
The significance of these attacks goes beyond interest rates. They cut to the essence of monetary policy itself. What was once treated as sacrosanct in the US — an independent central bank — may not survive in its current form.
EU also in the crosshairs
Meanwhile, in the small Adriatic resort town of Rimini, another former central banker — Mario Draghi, ex European Central Bank president and Italian prime minister, and soon to be joined in retirement by Powell — made an address on “the future of Europe: between crisis and hope”.
“For years, the European Union has believed that economic relevance, with 450 million consumers, brings with it geopolitical power and influence on international trade,” he said. “This year will be remembered as the year in which this illusion evaporated.”
The evidence underpinning this sobering hypothesis is inarguable: Europe’s acquiescence to tariffs imposed by its supposed ally, the US; its reluctant increases in military spending, done in ways that reflect Washington’s interests more than its own; and its marginalisation in peace negotiations over Ukraine, despite being the largest financial contributor to Kyiv’s defence.
The photo last week of seven European leaders summoned to the Oval Office, seated stiffly across from Trump behind his desk, as if truant school children before a headmaster, captured Draghi’s point more vividly than words.
As Draghi points out, the result of this humiliation was deepening skepticism toward the European project. Yet this was not, he insisted, a rejection of the union’s founding principles — democracy, freedom, prosperity, independence — but of its ability to defend them.
Both speeches reflect the same truth
Taken together, the Powell and Draghi speeches reflect the same underlying truth. The institutional architecture that governed the late twentieth century is no longer adequate for the twenty-first. Largely products of the neoliberal era between 1980 and the early 2000s, these structures were premised on open markets, free trade, multilateral rules and a deliberate retreat of the state. Authority was delegated to independent technocratic agencies, with central banks foremost among them. The independence of monetary authorities was treated as sacrosanct, a guarantor of stability and growth.
But in today’s harsher, mercantile climate, those structures look brittle. Power politics is back. Institutions that claimed neutrality — central banks, supranational bodies, constitutional courts – are reluctantly being dragged back into the political arena.
For South Africans, this is not an abstract reality. The country’s post-apartheid democracy is a product of the same neoliberal moment. Its Constitution, admired worldwide, reflects the high-water mark of that era — expansive, liberal and founded on human rights, sometimes almost too idealistic for the society it governs. The South African Reserve Bank has been praised globally for its independence, occasionally to the point of self-harm when orthodox policy outweighs domestic needs. The Constitutional Court, despite having been tested under extraordinary pressure during the Zuma years, has held the line on the rule of law. And South Africa’s embrace of free trade and open markets in the 1990s, pursued with near-religious zeal, has left its once formidable domestic manufacturing capacity in tatters.
It is no surprise therefore that skepticism is rife in South Africa, too. Citizens increasingly doubt that these structures, forged in the optimism of the 1990s, can address today’s crises: rampant inequality, state decay and an unforgiving global economy. The crisis of faith Draghi described in Europe clearly echoes South Africa’s own disillusionment.
Draghi captured this predicament with precision.
“We must not try to extrapolate the achievements of the past into the future we are about to experience: the successes we achieved in previous decades were actually responses to the specific challenges of that time and tell us little about the ability to face those that confront us today.”
This warning applies as much to Pretoria as it does to the eurocrats in Brussels and the central bankers of the Federal Reserve. The independence of central banks, the authority of supranational bodies, the liberal constitutions drafted in the late twentieth century — all these are products of a world that assumed stability, rules and cooperation. That world is gone. The institutions it produced now look not only outdated but, at times, like liabilities to those citizens they were meant to serve.
The long summer of neoliberalism is ending. Central banks, the EU, and indeed the democratic institutions of South Africa are all struggling to adapt to a harsher climate. Powell and Draghi, each in his own way, signalled that they are themselves products of a former era. The only question is whether these structures and institutions can evolve, if at all, before winter fully arrives. DM