Younger generations should read about Alan Greenspan, who died at 100. He was the most influential central banker at the turn of the century — and perhaps the most ambiguous. During nearly two decades at the helm of the Federal Reserve, he became the “maestro” of the U.S. economy: he spoke sparingly, often opaquely, moved markets with half-sentences, and seemed able to see before others where inflation, growth and productivity were heading.
His reputation was not undeserved. Greenspan took over the Fed in 1987, after Paul Volcker had rebuilt U.S. monetary credibility through the painful medicine of high interest rates. He inherited that institutional asset. He then navigated the 1987 stock-market crash, the Mexican crisis, the Asian crisis, the collapse of Long-Term Capital Management and the shock of September 11. For years, it seemed the Fed had learned how to smooth the business cycle without paying the classic price of higher inflation.
That was Greenspan’s greatness. It was also his trap.
Greenspan was right to see that technology, globalization and productivity gains allowed the U.S. economy to grow faster without inflation. But he was wrong to place so much faith in the self-discipline of financial markets. The same central banker who saw structural change before the models did failed to see — or failed to contain — the excesses that would lead to the 2008 crisis.
That is where the lesson becomes relevant for Brazil.
Price stability is necessary for an economy to function. But it is not sufficient to prevent crises — nor should it be used as an automatic argument to normalize one of the world’s highest real interest rates. Low inflation can coexist with excessive leverage, poorly allocated credit, illusory liquidity and asset bubbles. It can also coexist with an economy kept under strain for too long.
The lesson for Brazil’s Central Bank is not that the Selic, the country’s benchmark interest rate, should be used to solve every problem. Interest rates are powerful, but blunt. The central bank also needs to rely on its macroprudential toolkit: capital, liquidity, provisions, exposure limits, credit supervision and risks that sit outside the traditional monetary-policy debate — private credit, funds, securitization, fintechs, derivatives, FIDCs, and products that promise daily liquidity while holding long-term assets.
But Brazil’s case goes further.
Central bank autonomy was presented as an institutional advance. Perhaps it is. But its real test is not only whether it protects monetary policy from the pressure of the government of the day. It is also whether it prevents the central bank from becoming captive to another form of pressure: that of financial markets.
Greenspan helps illuminate that risk. A central bank can be independent from elected politics and still dependent on a worldview. Greenspan did not need to take orders from Wall Street to think like Wall Street. His faith in the self-discipline of markets was part of his intellectual formation, his network of interlocutors and the environment that celebrated him as a maestro. The most dangerous form of capture, in that case, was ideological.
In Brazil, the uncomfortable question is whether autonomy protected the central bank from politics — or also helped shield a particular monetary-policy regime from democratic debate. When every discussion ends with the yield curve, the Focus survey, the risk premium and the reaction of Faria Lima, São Paulo’s financial district, the issue stops being purely technical. It becomes institutional: to whom is the Central Bank accountable?
High interest rates may be necessary at certain moments. But a country cannot treat as normal a policy that rewards financial capital at extraordinary rates, makes productive credit more expensive, compresses investment and then presents those effects as the simple consequence of a neutral reaction function. Monetary policy is never socially neutral. It distributes costs and benefits.
This may be Greenspan’s most Brazilian lesson. The problem is not listening to markets. Ignoring prices, curves, expectations and risk premia would be irresponsible. The problem is starting to think like markets. Greenspan built authority partly because he understood Wall Street. But his legacy was rewritten when it became clear that Wall Street had also understood Greenspan.
The 2008 crisis changed the meaning of his record. The “maestro” came to be remembered also as the man who failed to hear the growing noise inside the orchestra.
For Brazil’s Central Bank, the conclusion is not simple. Independence can protect monetary policy from electoral irresponsibility. But it can also shield deeply distributive choices under the appearance of pure technique. The danger is not only having a powerful central bank. It is believing that such power is neutral.
Independence protects the Central Bank from the government. Democracy must protect it from market capture — and from itself.