Trump's war on the Fed threatens global financial stability, European central bankers warn

Central Bank Independence - The Trump administration's actions are seen as a threat to the long-held consensus of central bank independence, which has been a cornerstone in developed economies for nearly 50 years [1][3] - Central bank independence is emphasized as crucial for financial and price stability, with warnings of potential structural rises in global inflation if the Federal Reserve's credibility is compromised [5][6] Political Pressure on the Federal Reserve - Fed chair Jerome Powell disclosed a criminal investigation into the $2.5 billion renovation of the Fed's headquarters, which he claims is a political attack due to the Fed's refusal to lower interest rates as pressured by Trump [2] - Global central bank leaders, including those from the Bank of England and the European Central Bank, have publicly defended Powell against these political pressures [2] Economic Vulnerability - Trichet highlighted a bipartisan consensus in the U.S. to increase spending, which contributes to economic and political vulnerability, as investors become cautious about financing deficits and high debt-to-GDP ratios [6] - The current level of debt as a proportion of GDP is reportedly higher than before the Lehman Brothers collapse, indicating significant economic vulnerability [7] Global Economic Implications - The potential subservience of the Federal Reserve to the executive branch could have damaging effects on global economic stability, with Trichet expressing concerns about the overall vulnerability of the global economy [8] - Citi warns that risks to central bank independence from populist governments could extend beyond the U.S., affecting global financial markets and policy decisions [10][11]