FRANKFURT, Germany (AP) — Central bankers from around the world said Tuesday they “stand in full solidarity” with U.S. Federal Reserve Chair Jerome Powell, after President Donald Trump dramatically escalated his confrontation with the Fed with the Justice Department investigating and threatening criminal charges.
Powell “has served with integrity, focused on his mandate and an unwavering commitment to the public interest,” read the statement signed by nine national central bank heads including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey.
They added that “the independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.”
The dispute is ostensibly about Powell’s testimony to Congress in June over the cost of a massive renovation of Fed buildings. But in a statement Sunday, Powell, abandoning his previous attempt to ignore Trump’s relentless criticism, called the administration’s threat of criminal charges “pretexts’’ in the president’s campaign to seize control of U.S. interest rate policy from the Fed’s technocrats.
Trump has repeatedly criticized Powell and the Fed for not moving faster to cut rates. Economists warn that a politicized Fed that caves in to the president’s demands will damage its credibility as an inflation fighter and likely lead investors to demand higher rates before investing in U.S. Treasurys.
Fed actions have impacts around the world due to the U.S. dollar’s role as the leading currency for trade transactions and central bank reserves. Fed interest rate changes can affect the dollar’s exchange rate against other currencies and the value of foreign investors′ U.S. assets.
Politically independent central banks have become a cornerstone of the global economy because they can more easily take steps to fight inflation, such as rate hikes, that are unpopular in the short term but preserve price stability over the longer term.
Other signatories of the statement carried on the ECB’s website were Erik Thedeen, governor of Sweden’s central bank; Christian Kettel Thomsen, chair of Denmark’s central bank; Swiss National Bank Chair Martin Schlegel; Michele Bullock, governor of the Reserve Bank of Australia; Tiff Macklem, governor of the Bank of Canada; Bank of Korea Governor Chang Yong Rhee; and Gabriel Galipolo, governor of the Banco Central do Brasil.
Also attaching their names were François Villeroy de Galhau, board chair of the Bank for International Settlements, and Pablo Hernández de Cos, BIS general manager. The BIS is an international organization of central banks based in Basel, Switzerland.
One prominent central bank not included in the statement was the Bank of Japan. The statement said that more signatures could be added later. Bank of Japan officials could not immediately be reached for comment.