In an unprecedented show of solidarity, central banks across the globe are rallying behind U.S. Federal Reserve Chair Jerome Powell, emphasizing the critical importance of the Fed's independence. This united front comes in response to what they see as escalating threats to the Fed's autonomy, particularly in light of the Justice Department's investigation into Powell.
The coordinated statement, signed by central bank governors from various countries, underscores the growing alarm over potential infringements on monetary policy independence within the world's most influential central bank. Signatories include prominent figures such as Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde. The Bank for International Settlements (BIS) coordinated the statement, with its chair and general manager also adding their names. Central bank heads from Australia, Sweden, Denmark, Switzerland, Brazil, South Korea, and Canada, among others, have also signed the statement, with more expected to join.
The central bankers declared that they "stand in full solidarity" with the Fed and Powell, asserting that the independence of central banks is a cornerstone of price, financial, and economic stability, acting in the best interests of the citizens they serve. They emphasized that preserving this independence, with full respect for the rule of law and democratic accountability, is crucial. The statement also recognized Powell's integrity, unwavering commitment to the public interest, and the high regard in which he is held by his colleagues.
The recent dispute stems from Powell's congressional testimony in June regarding the renovation costs of Federal Reserve buildings. However, Powell has characterized the Trump administration's threat of criminal charges as a pretext for the president's campaign to seize control of U.S. interest rate policy. He stated explicitly that the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the preferences of the President.
Economists are warning that a politicized Fed, yielding to presidential demands, would damage its credibility as an inflation fighter, potentially leading investors to demand higher rates before investing in U.S. Treasuries. Bundesbank President Joachim Nagel stated that central bank independence is a prerequisite for price stability and a valuable asset, expressing concern over the recent developments in the U.S. regarding the Fed chair.
Even before the joint statement, Bank of Canada Governor Tiff Macklem offered his full support to Powell, emphasizing that Powell makes monetary policy decisions based on evidence, not politics. Other central bank chiefs, including Lagarde, have also repeatedly highlighted the importance of monetary policy independence and defended Powell.
The coordinated response from global central banks is typically reserved for global emergencies, such as the 2008 financial crisis and the COVID-19 pandemic, highlighting the severity of the perceived threat to the Fed's independence. This unusual intervention underscores the importance of maintaining the autonomy of central banks to ensure economic stability and public trust.
