European central bankers have expressed alarm over President Donald Trump's ongoing efforts to influence the US Federal Reserve, warning that such actions could threaten global financial stability.Christine Lagarde, the president of the European Central Bank (ECB), stated that undermining the Fed's independence would have dire consequences not only for the US economy but also for economies worldwide.
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theguardian.combbc.comLagarde emphasized that if the Federal Reserve were to operate under political pressure, it could lead to significant instability in the US economy, which is the largest in the world.
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theguardian.comShe noted that Trump's threats to remove Fed Chair Jerome Powell and Governor Lisa Cook could represent a "very serious danger" to economic stability.
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impakter.combbc.comThe ECB is closely monitoring these developments, as they could have ripple effects across global markets.
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impakter.comFormer European Central Bank governor Jean-Claude Trichet echoed these concerns, stating that the Trump administration's attempts to alter the long-standing principle of central bank independence could have "grave" implications for the global financial system.
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cnbc.comHe warned that a Federal Reserve that acts as a "most obedient servant" to the executive branch would not align with the expectations set forth in the US Constitution.
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cnbc.comTrichet highlighted the potential for rising global inflation if the Fed's credibility is compromised, which would necessitate adjustments in monetary policy across Europe and beyond.
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cnbc.comThe backdrop to these warnings includes Trump's repeated criticism of the Fed for not cutting interest rates aggressively enough to stimulate economic growth.He has publicly expressed a desire to see rates drop significantly, which could lower government borrowing costs but also risks igniting inflation.
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bbc.comThe Fed's current target for interest rates is between 4.25% and 4.5%, while Trump has called for reductions to below 1%.
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bbc.comLagarde pointed out that political interference in central banking could erode trust in institutions that are crucial for maintaining price stability and controlling inflation.
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theguardian.comThis sentiment is echoed by other central bank leaders, who have issued joint statements in defense of Powell amid Trump's attacks.
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cnbc.comThe potential for a loss of independence at the Fed raises concerns about the broader implications for global financial markets, particularly as investors grow wary of financing deficits and high debt-to-GDP ratios in the US.
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cnbc.comThe situation is further complicated by Trump's tariff policies, which have already contributed to rising borrowing costs in the US and Europe.
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theguardian.comInvestors are increasingly concerned about the impact of these tariffs on inflation and economic growth, leading to heightened volatility in financial markets.
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theguardian.comLagarde noted that political developments can have immediate and significant impacts on economic conditions, underscoring the interconnectedness of global economies.
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theguardian.comTrichet also warned that the current calm in the markets is misleading given the underlying risks, comparing the present situation to the period leading up to the 2008 financial crisis.
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cnbc.comHe stressed the importance of maintaining a strong and independent Federal Reserve to safeguard the stability of the global economy.
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cnbc.comIn conclusion, the ongoing tensions between the Trump administration and the Federal Reserve have raised serious concerns among European central bankers about the potential for destabilization in both the US and global economies.As the situation unfolds, the implications of political interference in central banking will be closely watched by financial markets and policymakers alike.
