World’s central banks fear Fed storm

They see potential for dangerous precedent

- FRANCESCO CANEPA HOWARD SCHNEIDER LEIKA KIHARA

Global central bankers gathered at a US mountain resort over the weekend are starting to fear that the political storm surrounding the Federal Reserve may engulf them too.

US President Donald Trump's efforts to reshape the Fed to his liking and pressure it into interest rate cuts have raised questions about whether the US central bank can preserve its independence and inflation-fighting credentials.

Trump, frustrated by the legal protections given to the Fed’s leadership and the long terms for Board of Governors members meant to outlast any given president, has put intense pressure on Chair Jerome Powell to resign and is pushing to oust another board member, Governor Lisa Cook.

If the world’s most powerful central bank were to yield to that pressure, or Trump finds a playbook for removing its members, a dangerous precedent would be set from Europe to Japan, where established norms for the independence of monetary policy may then come under new attack from local politicians.

“The politically motivated attacks on the Fed have a spiritual spillover to the rest of the world, including Europe,’ European Central Bank policymaker Olli Rehn, from Finland, said on the sidelines of the Fed’s annual symposium in Jackson Hole, Wyoming.

That’s why Mr Rehn and colleagues were strongly encouraging Mr Powell to stand his ground, even after he signalled a possible rate cut in September. Mr Powell received a standing ovation when he took the podium at the conference.

‘NOT BE TAKEN FOR GRANTED’