The Governor of the Central Bank of Finland, Olli Rehn, stressed today that any loss of independence US Federal Reserve It will raise inflation and may even threaten financial stability, expressing “full solidarity” with Federal Reserve Chairman Jerome Powell.
“If the Fed’s independence is undermined, we could see a structural rise in inflation,” Rehn, the ECB vice-president nominee, told CNBC.
He added: “This type of action or threat to the independence of central banks may undermine the credibility of financial markets, including bond markets. Therefore, I believe that it is also important, for US bond markets and US financial stability, to maintain the independence of central banks and their monetary independence.”
Yesterday, the heads of many of the world’s major central banks issued a joint statement in support of Federal Reserve Chairman Jerome Powell, after the Trump administration threatened to file criminal charges against him.
Jerome Powell faces a criminal investigation by the US administration into the renovation of the Federal Reserve headquarters, which he described as a “pretext” to gain presidential influence over interest rates.
The heads of the European Central Bank, the Bank of England, the Bank of Canada, and eight other institutions emphasized that Powell acted with integrity, and that the independence of central banks is crucial to maintaining the stability of prices and financial markets.
“We stand in full solidarity with the Federal Reserve System and its Chairman, Jerome H. Powell,” central bankers said in a rare joint statement.
They added: “The independence of central banks is the cornerstone of the stability of prices and financial and economic markets, in a way that serves the interests of the citizens we serve.”
Central bankers fear that political influence over the Federal Reserve will erode confidence in the bank’s commitment to its inflation target, which could lead to higher inflation and volatility in global financial markets.
Since the United States is the globally dominant economy, it will likely export this high inflation through financial markets, making it difficult for other central banks to maintain price stability.
“It is therefore crucial to maintain this independence, with full respect for the rule of law and democratic accountability,” a group of central bankers said.
The group included the central bank governors of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France, in addition to the president of the Bank for International Settlements, an umbrella body.
