In an unprecedented show of international support, central bank governors from across the globe declared their collective backing of U.S. Federal Reserve Chair Jerome Powell on Tuesday amid escalating tensions with President Donald Trump's administration. The statement follows recent moves by the U.S. Justice Department investigating and threatening criminal charges connected to Powell.
The unified declaration, signed by nine heads of national central banks including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, praised Powell for his integrity and steadfast dedication to his official responsibilities. The statement highlighted that Powell has maintained focus on his mission and upheld a commitment to the public's interest despite increasing political attacks.
Central to the statement is an affirmation that central bank independence is foundational to ensuring price stability, financial security, and overall economic steadiness for the populations these institutions serve. The signatories underscored the necessity of preserving this independence while respecting democratic processes and the rule of law.
The current dispute intensified after Powell's June testimony before Congress concerning the substantial costs involved in renovating Federal Reserve buildings. Powell had initially refrained from public comment on the president's repeated criticisms but recently responded to the administration’s threats of legal repercussions by referring to them as "pretexts" intended to wrest control over U.S. interest rate policymaking from the Fed's experts.
President Trump has persistently criticized the Federal Reserve, urging swifter rate cuts to stimulate the economy. However, economists caution that allowing political pressures to dictate Fed policy risks undermining the institution’s credibility, particularly regarding inflation control. This credibility erosion could prompt investors to demand higher returns for U.S. Treasury debt, potentially increasing borrowing costs.
The Federal Reserve's decisions have significant global ramifications, reflecting the U.S. dollar’s dominant status in international trade and as a reserve currency. Fluctuations in U.S. interest rates influence currency exchange valuations and the worth of assets held internationally, impacting economies worldwide.
Politically autonomous central banks have become critical for managing challenges such as inflation by enabling policies like interest rate hikes that, although potentially unpopular in the near term, ensure long-term price stability. Additional signatories to the solidarity statement include governors from Sweden, Denmark, Switzerland, Australia, Canada, South Korea, and Brazil, as well as senior officials from the Bank for International Settlements (BIS), an international group of central banks based in Switzerland.
Notably absent from the list was the Bank of Japan, which has not issued a public comment regarding the situation. The statement indicated that further endorsements from other central banks might follow.