The Bank of England’s governor on Friday warned that Britain risked an economic recession if citizens voted to leave the European Union (EU) in next month’s referendum. “In that scenario we would expect a material slowing in growth, a notable rise in inflation, a challenging trade-off,” Mark Carney predicted at a news conference. Prudent advice from a sober-minded central banker? Or, as critics charge, a misguided effort to sway a democratic debate by pushing an institution that should remain above the fray into the political arena?

On one level the prediction represents a reasonable view of what could unfold if Britain embraces Brexit. But the BoE is also walking a fine line that separates legitimate macroeconomic analysis from political debates. Hanging in the balance is the central bank’s role as an effective steward of the nation’s economy that’s free (or mostly free) of the perception of political bias. That’s always been a delicate balance, in the UK and around the world. Central bankers, after all, draw authority from governments. But as last week’s BoE press conference suggests, keeping politics out of central banking isn’t getting any easier and it may be set to get a whole lot tougher.

It’s not that difficult to imagine the Federal Reserve getting dragged into the increasingly volatile politics linked to the US economy. Macro has always been tightly bound up with political views, but the last several years has witnessed this hazard go into overdrive. This is partly due to the sluggish recovery in the wake of the Great Recession. The weak growth has spawned any number of conspiracy theories that lay blame on the Fed for the economy’s unsatisfying recovery. Never mind that the Great Recession would almost surely have been worse without central bank intervention. Regardless, it’s getting harder for large swaths of the electorate to see the Federal Reserve as an institution that’s free of a political agenda, and a nefarious one at that.

In some respects, that’s old news. Advocates of the gold standard have long maintained that the Fed is an illegitimate heir to a hard-money system that pledges political allegiance to an overlord class that seeks to steal wealth from the masses. But such critics have been largely dismissed as a minority of macro cranks, promoting a script that barely registers with the American electorate. The question is whether the economic-political landscape is shifting so that a majority of voters think of the central banks as something other than technocratic managers of money? If so, are central bankers destined to be dragged deeper into the vortex of political policy debates?

If that case, the Bank of England’s warning last week may come to be seen as a infamous turning point. Even if central bankers operate as they always have, the public may be far more inclined to perceive that these institutions are politicized. Perhaps the real tipping point is some event in the near future when the Fed feels compelled to weigh in on some aspect of pending legislation in Congress that may cast a shadow over future economic growth–an event that generates a Carney moment in the US. Perhaps the Fed chair goes on at length about the potential for macro blowback at a press conference following the release of a monetary policy statement. The news goes viral and a tsunami of criticism is unleashed, spawning Congressional hearings and a national debate about how to revise the Fed’s role.

Unlikely? Perhaps, but note the strong reaction in Britain after Carney’s warning about the June 23 Brexit vote. By some accounts, his comments that effectively counsel voters to keep Britain in the EU went too far and amount to the Bank of England (BoE) dispensing political advice. Not surprisingly, the BoE governor has a different view. As BBC reports,

He rejected suggestions he had breached the Bank’s impartiality mandate, and denied claims the remarks had emphasised only the downside of leaving the EU.
“Our central forecast is for Remain – we always take government policy, that’s the standard approach of the Bank of England – but we go into great detail about the risks around that,” he told Marr.
Mr. Carney denied claims that he had overstepped the mark by making statements on EU membership.

Speaking on a TV show over the weekend, much as a politician might to promote his view of the facts during a policy debate, Carney reasoned that “if we’re potentially going to alter the path of interest rates or other instruments of monetary policy because of certain things manifested, we have a duty to explain that to the British people and to Parliament.”

Carney’s comments followed charges by a British lawmaker that the BoE governor should be fired for overstepping his authority and wading too deeply into politics. The Express reports:

Jacob Rees Mogg, a prominent anti-EU campaigner, reacted with anger to the governor’s intervention yesterday.
He said Carney had become “highly partisan” after the Bank’s Monetary Policy Committee warned Brexit could lead to an economic downturn.
The North East Somerset MP also expressed serious concern over the independence of the Bank, calling the situation “unfortunate”.
He said: “Mark Carney has intervened speculatively in a political matter.
“It’s the responsibility of the Monetary Policy Committee to be independent.

Yes, everybody has an axe (or five) to grind. The difference now is that central bankers are at risk of being perceived as just another government entity with a political agenda. The danger is that if this perception spreads and takes root, the efficacy of central banking may suffer. It’s already stretched thin, but it’s not obvious that the decline and fall of influence through monetary channels has run its course.

Although the Fed, the BoE and their counterparts around the world deal in money supply and related matters of monetary substance, there’s a certain aspect (arguably the dominant aspect) of managing expectations in the wider world. If that withers due to growing concerns, accurate or not, that central bankers are really just politicians in monetary drag, well, there will be repercussions.

The solution, of course, is robust growth, in which case the Fed and other central banks could go back to their quiet routine work of overseeing money supply and other dull aspects of managing monetary affairs and leave the politicking to the pols. But growth remains soft and precarious and the electorate is skeptical of central banking.

We’re not in Kansas anymore–welcome to Central Banking 2.0.