Global central bankers defend Fed’s Powell after Trump threat

[FRANKFURT] Central Bank chiefs from around the world lined up in support of Federal Reserve chair Jerome Powell on Tuesday (Jan 13), issuing an unprecedented statement of solidarity after the Trump administration threatened him with a criminal indictment.

Powell has been threatened with indictment over Congressional testimony he gave last summer about the renovation of the Fed’s headquarters, which he has called a “pretext” to win presidential influence over interest rates.

“We stand in full solidarity with the Federal Reserve System and its Chair Jerome H Powell,” the central bankers said in a rare joint statement.

Independence from government influence has been the key foundation of modern central banking and remained the unquestioned standard for the world’s biggest institutions until US President Donald Trump started demanding lower rates and putting pressure on individual policymakers.

Unprecedented support

The heads of the European Central Bank (ECB), the Bank of England, the Bank of Canada and eight other institutions said that Powell had acted with integrity and that central bank independence was crucial for keeping prices and financial markets stable.

“The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve,” the statement said.

Sources close to the process said that ECB president Christine Lagarde, who signed on behalf of the eurozone’s 21 central banks, was the key driver of the joint response, while much of the actual footwork to get individual governors on board was done by Pablo Hernandez de Cos, the general manager of the Bank for International Settlements (BIS), a central bank umbrella body.

The ECB and the BIS declined to comment.

Other signatories included the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France, as well as top officials at the BIS.

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The Bank of Japan was notably absent from the list.

A spokesman for the BOJ said the bank refrained from commenting on other central banks’ action.

A source close to the process said the BOJ had initially expressed support for the joint statement but was not yet ready to sign. The list is not considered final, however, and central bankers could still add their name, several sources said.

Fears of higher inflation

The US inquiry into Powell has already drawn criticism from the world of finance and also some key members of Trump’s Republican Party.

Central bankers fear that political influence over the Fed would erode trust in the bank’s commitment to its inflation target. This would lead to higher inflation and global financial market volatility.

Since the US is the world’s dominant economy, it would likely export this higher inflation via financial markets, making it more difficult for other central banks to keep prices stable.

“It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability,” the group of central bankers said. REUTERS