Written by Francesco Kaiba, Howard Schneider and Lika Kihara
Jackson Hall, Wyoming (Reuters) -Central Banking Banking in Global began at an American mountain resort during the weekend, fearing that the political storm surrounding the Federal Reserve may also swallow them.
US President Donald Trump’s efforts to reshape the Federal Reserve, according to his desire and pressure on interest rate discounts on whether the US Central Bank can maintain its credentials to combat inflation.
Trump, who was frustrated by the legal protection granted to the leadership of the Federal Reserve Bank and the long conditions for the members of the Board of Governors who aim to excel any specific president, on extensive pressure on President Jerome Powell to resign and pressure the overthrow of other members of the Board of Directors, the governor of Lisa Cook.
If the most powerful central bank in the world has achieved this pressure, or Trump finds a playing book to remove its members, a dangerous precedent from Europe to Japan will be appointed, where the standards in force may be exposed to the independence of monetary policy in a new attack by local politicians.
“Political motivated attacks on the Federal Reserve Bank with the lowest spiritual for the rest of the world, including Europe, said the European Central Bank of Politics, from Finland, on the sidelines of the annual symposium at the Federal Reserve in Jackson Holg.
For this reason, Rin and his colleagues supported Powell enthusiastically to stand at home, even after he indicated a reduction in September. Powell met with standing up when he took the platform at the conference.
“It is not taken as a Muslim command.”
The talks with dozens of central bankers from all over the world revealed on the sidelines of the Federal Reserve Smile in the shades of the Greater Titon Mountains that a scenario in which the Federal Reserve sees its ability to face inflation due to independence as a direct threat to economic status and stability.
They said that this is likely to require major turmoil in the financial markets, as investors are calling for a greater installment to possess US bonds and re -evaluate the status of treasury papers as a lifeline for the global financial system.
Central banks all over the world have already started preparing for progress, and informed the lenders on their watch to see their exposure to the American currency.
More importantly, the surrender of the Federal Reserve will lead to the end of the system of fetching relative prices and has continued at least since the late President Paul Volker defeated high inflation 40 years ago.
Since then, more and more central banks have followed the Federal Reserve model for political independence and one focus on its mandate – for most of them, while maintaining inflation near 2 %.
“It is a reminder that independence should not be considered a minor from it,” said Bundanas Bank President Joachim Nagil, who is also a member of the Board of Directors of the European Central Bank. “We have to deny our state and clarify that independence is Conditio Sine Qua, not for price stability.”
Political football
Markets have not yet been registered with deep concerns about the independence of the Federal Reserve. American stock markets were wasted, and there was no kind of jumping in the treasury yield or inflation expectations that would be symbolic to the credibility of the federal reserve at risk.
While Trump can name a new chair when Powell is the mandate of a political president, he needs more departure between the Seven Federal Reserve Board of Directors of its members to combat the majority. The Federal Reserve Network consisting of 12 regional reserve banks, whose leaders are alternating to vote on the interest rate policy, is another budget, which was appointed by local administration councils as a way to keep them away from the influence of Washington.
However, Trump’s tense relationship with the Federal Reserve, which has been identified in a country, is considered to have strong institutional and legal traditions, has made other central bankers familiar with the extent of their independence.
Even the European Central Bank, which was punished for the autonomy of the 20 euro -region government by the European Union treaties, had to fight severely to prove this.
It was accused of financing governments when it launched its huge plan to buy bonds a decade ago with the aim of getting rid of shrinkage, and multiple challenges from the court have sought to prevent these purchases.
The right and left parties in countries such as Italy, Germany and France periodically criticized the central bank.
Other countries have transformed the appointment of their national ruler into political football.
The Central Governor of Latvian Bank, Martins Casax, was criticized by national politicians for not bringing the government’s desires during his stricken reset. Slovenia has not had a ruler since January amid party quarrels.
In Japan, the late Prime Minister Shinzo Abi criticized the Central Bank of Massaki Sherrakawa for his very little to overcome the contraction, and Haroiko Coroda took revenge in 2013 to take his head when Sherrakawa stepped down weeks before his term.
Then Koruda published a huge program to buy assets, which helped weaken the yen and reflects growth, but it sparked the eyebrows among traditional central bankers to make Boj the main creditor of his government.
Set a bad example
Trump said that the end of the next Powell state was unable to “come quickly” and publicly began to choose a successor.
“It seems as if Trump learned from Abe,” said one of the sources familiar with the thinking of Boj, who rejected his name because of the sensitivity of the issue.
In turn, Trump’s moves can move governments all over the world, especially those that have popular tendencies, to confirm control of its central banks.
This way can pave the way for the high in the world and the most volatile markets.
“The seizure of the Federal Reserve is one of the developments that will define a very bad example of other governments,” said Mori Ontold, an older colleague at the Peterson Institute for International Economy and a former Economist in the International Monetary Fund.
“How do you see this occurrence in the United States, which was believed to be the stronghold of checks, institutional balances and the rule of law, and do not conclude that other countries are easier goals?”
(I participated in the reports of Francesco Kaiba, Howard Schneider and Lika Kihara; additional reports from Ann Travel; edited by Dan Burns and Andrea Richce)
