In an interview with Adnkronos, former European Central Bank president
Donald Trump's attack on Fed chairman Jerome Powell "is very shocking; it is a direct attack on the independence of the US central bank". In an interview with Adnkronos, former European Central Bank president Jean-Claude Trichet joined the outcry from central bankers against the criminal inquiry into the head of the Federal Reserve, the latest act in a long-running conflict.
Breaking with central bankers typical confidentiality, the former head of the Eurotower expressed deep concern about the interference of the US President. "Even more serious than the verbal attack on Powell", who was "also very courageous in his response", is the willingness of Trump "to subjugate the entire Fed by using the Justice Department, itself totally subservient, as a weapon: this makes the whole affair even more shocking", Trichet emphasised.
This is "an inadmissible attack in the eyes of the Fed and, progressively, also in the eyes of the markets" he stated, noting that it is no coincidence that ‘Powell has received unanimous support from all central bankers and from his own predecessors, nominated both by democrats and republicans, from Yellen to Greenspan", because "the independence of central banks is part of a country's democratic structure and is essential".
According to Trichet, Trump, who has long been railing against Powell for not significantly cutting interest rates to boost the economy, has a short-sighted view. ‘Trump's reasoning is a classic in politics because governments think about the short term and seek immediate benefits". But, Mario Draghi's predecessor in Frankfurt pointed out, "what is totally new is attacking the central bank with inadmissible judicial means. A central bank thinks in the medium and long term because it must guarantee price stability and financial stability from a medium term perspective".
What will happen in the near future? Without delving into predictions, Trichet identified two possible scenarios. "The first, totally catastrophic but more likely, is that Trump will impose the appointment of a chair who is completely under his control and follows his instructions and, progressively, new equally obedient members, and this would represent a total loss of credibility and independence of the Fed in the eyes of the markets, American citizens and the whole world.’
The second scenario, "unfortunately much less likely, is that, despite the highly political appointments, those officials involved will progressively realise how important Fed's independence and accountability are for the United States, for American citizens and for Congress itself, and this will lead to partially preserving its independence". But, Trichet concluded bitterly, "the first hypothesis remains the most probable". (by Luana Cimino)
