Those responsible for some of the world’s main central banks have joined the defense of the Federal Reserve and its president Jerome Powell against the . The president of the European Central Bank, Christine Lagarde, leads, together with the president of the Bank of England, Andrew Bailey, and those responsible for the Bank for International Settlements (BIS), among whom is the Spaniard Pablo Hernández de Cos, a letter in which they express their solidarity with Powell in the face of the cruel harassment of the American president, who this Tuesday has returned to the fray.
In the midst of the dust raised by the criminal investigation of Powell, the Republican president has contributed to further inflaming the situation. He has called Powell “incompetent or corrupt.” Before leaving for Detroit where he is preparing to give a speech on the progress of the economy, journalists asked him about Powell’s case to which Trump responded: “Well, he is billions of dollars over budget. So, either he is incompetent, or he is corrupt. I don’t know what it is, but he certainly doesn’t do it very well,” he said in reference to the overruns at the Federal Reserve headquarters, which the prosecution is investigating.
“The independence of central banks is fundamental for price, financial and economic stability, for the benefit of the citizens we serve. Therefore, it is essential to preserve said independence, with full respect for the rule of law and democratic accountability,” the letter states. The letter is also signed by Erik Thedéen, governor of the Bank of Sweden (Sveriges Riksbank); Christian Kettel Thomsen, Chairman of the Board of Directors of the National Bank of Denmark (Danmarks Nationalbank); Martin Schlegel, Chairman of the Board of Directors of the Swiss National Bank; Michele Bullock, governor of the Reserve Bank of Australia; Tiff Macklem, Governor of the Bank of Canada; Chang Yong Rhee, governor of the Bank of Korea; Gabriel Galípolo, governor of the Central Bank of Brazil; François Villeroy de Galhau, president of the board of directors of the BIS, and Pablo Hernández de Cos, general director of the same institution. The Bank of Japan is not among the signatories, whose dependence on the Japanese Government allows, in practice, that representatives of the Executive can attend its monetary policy meetings.
The one that “Chairman Powell has carried out his role with integrity, focused on his mandate and with an unwavering commitment to the public interest” and insists that for all the signatories he is “a respected colleague”, as well as for all those who have worked with him.
The head of US monetary policy announced that he would clarify whether he lied during his appearance last summer in Congress to explain the remodeling of the institution’s headquarters. An investigation that has caused an earthquake in the Fed and whose repercussions remain unknown. On the one hand, voices are growing calling for the defense of the Fed’s independence. Thus, the three living former presidents of the central bank, , have signed another letter along with another dozen renowned economists to express their support for Powell.
On the other hand, harassment has already muddied Powell’s succession. Relevant figures in the Republican ranks, such as Thom Tillis, a key member of the Banking Committee, have stated that they will oppose any nomination of Trump to the Federal Reserve until this matter is resolved. His threat affects, among other appointments, Stephen Miran’s position, given that his mandate expires at the end of this month. “This must be resolved quickly, because the independence of the Fed to define the country’s monetary policy is something that we must guarantee continues without political interference,” said Senate Majority Leader John Thune, also a Republican.
The opening of the criminal procedure has also been received with misgivings in the White House itself. The head of the Treasury, Scott Bessent, would have shown his rejection of the investigation, as published yesterday Axios. “The secretary is not happy and he let the president know,” an anonymous source told the publication. The news portal assures that the Prosecutor’s Office would have started the process without notifying the Treasury and senior officials in Washington.
It is not the first time that central bankers have supported Powell in the face of Trump’s furious attacks. At the Sintra forum in July last year, organized by the ECB, a debate was displayed by academics, financiers and journalists that included applause and praise. “Exactly the same as our colleague Jay Powell. And I think I speak for everyone,” Lagarde said, questioned about what she would do if she were in the role of the American under pressure from Trump.
Powell’s decision
Until Monday, Powell had almost ignored the harassment and demolition carried out by Donald Trump since the start of the pre-campaign for the 2024 elections. The harassment received from the US president had only been responded to by the academic on a single occasion. In July of last year, the head of the central bank at the Fed headquarters in Washington. The president asked Powell for explanations about a 3.1 billion renovation and he assured him that that cost included the renovation of a third building completed five years earlier.
Powell’s decision to now warn that “the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what serves the public interest, rather than following the president’s preferences” is seen by the market as a sign that he is not willing to give in to the president.
A push that could lead him to maintain his position on the Fed’s council of governors beyond May, when his term as president of the institution expires, in order to protect his independence. Powell, if he wishes, can continue on the board until May 2028. The market expected him not to continue, as is the usual practice, but the new pulse has reopened this option.
Some analysts suggest that Trump’s offensive has more to do with discouraging Powell from remaining at the Fed rather than pressure on rates in the next meetings.
Atakan Bakiskan, US economist at Berenberg, says that “if Powell resigns from his post as governor in June, the resulting vacancy would allow President Trump to make a new appointment. If he does not resign, another member of the council would have to leave his position so that an external candidate – such as Kevin Warsh or Kevin Hassett – could become Fed chair. That person could be the one.”
Miran could remain in his position beyond this month, according to speculation at the German investment bank, if Powell resigns and the Supreme Court allows the dismissal of Lisa Cook. Some moves that would even make it easier for the Fed’s governing council. “This scenario would significantly increase the probability of a Federal Reserve willing to cut rates even if the economic data do not clearly support that decision,” Bakiskan warns.
Even so, ING strategists add, this scenario would place four pro-Trump members on the FOMC (“four MAGA doves”), of the 12 members of the council. “They would be very far from a takeover of the FOMC. The president clearly wants Powell to leave his post. If he does, it is still just one more vote. Given this, it is most likely that monetary policy will not be driven by the White House. Impacted, yes. But not dominated by it,” they conclude.
