Key points
- President Trump’s pressure on the Federal Reserve threatens its independence.
- This jeopardizes global market stability and the broader economy.
- Olli Rehn warns of significant worldwide spillovers from this pressure.
- The Fed’s autonomy has been crucial since the 1980s, but is now under threat.
European Central Bank (ECB) policymaker Olli Rehn has issued a stark warning regarding the escalating pressure from US President Donald Trump on the Federal Reserve (Fed). In a recent speech, Rehn highlighted the potential for far-reaching negative consequences on global markets and the overall global economy stemming from Trump’s persistent calls for lower interest rates.
This sustained pressure, Rehn emphasized, directly threatens the Fed’s long-established independence, a cornerstone of its effectiveness since the early 1980s.
Rehn expressed deep concern over the weakening of this crucial principle. He described the situation as “wobbling badly,” indicating a serious erosion of the Fed’s ability to make unbiased monetary policy decisions based on economic data rather than political expediency.
He emphasized the potential for this instability to create significant ripple effects globally, affecting financial markets and economies worldwide. The risk is not merely localized to the United States.
In response to this growing threat to central bank autonomy, Rehn urged Europe to actively bolster confidence in the euro as a reliable and stable currency.
Strengthening the euro’s position as a haven, he argued, would help mitigate the risk of similar politically-motivated interference with monetary policy in the European Union. This proactive measure is seen as crucial in maintaining stability and preventing a domino effect of compromised central bank independence.
Rehn further linked the ECB’s independence to its recent policy success, citing the achievement of the 2% inflation target within the euro area as evidence of this connection. He characterized this achievement as “no mere coincidence,” directly linking the ECB’s independence to its capacity for effective economic management.
He reiterated the ECB’s commitment to closely monitoring the economic situation and its readiness to take appropriate action if necessary to maintain economic stability.
