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The Fed's independence is challenged, what does it mean for global central banks to join forces rarely?
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Hello everyone, today XM Forex will bring you "[XM Group]: The independence of the Federal Reserve is challenged, what does it mean for global central banks to rarely join forces". Hope this helps you! The original content is as follows:
In the face of Powell being under judicial investigation, a group of leading central bank governors around the world issued a rare joint statement, supporting Powell while issuing a warning that political interference in monetary policy will not only severely damage the market credibility of the Federal Reserve, but will also directly impact the stable foundation of the global financial system.
Why are many central banks around the world collectively expressing support? If Powell wants to defend the independence of the Federal Reserve, that is, to use data as the basis for judging interest rate policies, then the next question is whether this means that if subsequent data are all towards Trump or the data is affected by the president, then the Fed still has to follow the president's wishes.
Co-signatories: Twelve central banks + the Bank for International Settlements join forces
European Central Bank President Christine Lagarde said bluntly on behalf of the twelve central banks: "We are www.xmtraders.completely on the same side as the Federal Reserve and its Chairman Jerome H. Powell."
The list of co-signers of this statement can be called a "luxury lineup", including Bank of England Governor Andrew Bailey, Swedish Bank Governor Eric Tedion, Swiss National Bank Chairman Martin Schlegel, Bank of Canada Governor Steve McCallum, and Reserve Bank of Australia Governor Michel Bullock.
Bank of Korea Governor Lee Chang-yong, Brazilian Central Bank Governor Gabriel Garpollo, Norges Bank Governor Ada Walden Bacher, Danish Bank Chairman Christian Keitel Thomson, and senior executives of the Bank for International Settlements also joined the signature camp.
The statement praised Powell as a "well-respected and reputable colleague in the industry" and emphasized that the central bank's independence is "maintaining the central bank's independence."It is the core pillar of price, financial, and economic stability, and its ultimate goal is to protect the well-being of the people we serve."
Previously, U.S. Treasury Secretary Bessent said on a program that the influence of the Federal Reserve may need to be weakened, triggering concerns about the overall central bank system. If the independence of the monetary authority represented by the Federal Reserve is threatened and is left to the government's control, will other countries follow suit? That is, if other countries face conflicting interests between the government and the monetary authority. At that time, if the government will also exert pressure to control the central bank, who will speak for the monetary authorities?
The root of the storm: Headquarters renovation investigation intensifies the confrontation between the White House and the Federal Reserve
The trigger for this statement of support was Powell's rare tough statement on January 11.
At that time, Powell pointed out that the criminal investigation of his congressional testimony by the US Department of Justice was essentially an attempt by political forces to weaken the independence of the Federal Reserve.
It should be noted that the target of this investigation is the renovation cost of the Federal Reserve’s Washington headquarters, which will undoubtedly worsen the already tense relationship between the White House and the Federal Reserve.
U.S. officials, including White House economic adviser and potential Fed chairman Kevin Hassett, have repeatedly argued that this investigation has nothing to do with interest rate policy.
But anyone with a discerning eye can see that colleagues from various central banks are skeptical of this rhetoric. Almost beyond words.
Market reaction: Inflation data is reassuring, and the stock and bond markets calmly digest the noise
Despite the turmoil in the political arena, in the opinion of economists, there has been no substantial deviation in the Fed's policy path.
Bernard Yaros, chief U.S. economist at Oxford Economics, said bluntly: "The criminal investigation against Powell will most likely not change the pace of the Fed's monetary policy, and may even have a counterproductive effect. ”
Yaros further analyzed that Fed officials are likely to deliberately slow down the pace of interest rate cuts now, just to avoid the outside world interpreting policy actions as bowing to political pressure.
He reiterated his baseline prediction: As long as inflation can fall steadily and economic growth remains resilient, the Fed will most likely follow the dot plot trend and cut interest rates once in June and September this year.
The market’s reaction also confirmed this view, that is, as long as the data is trustworthy, real and effective Then it will directly affect the Federal Reserve's interest rate decision. The December inflation data released on Tuesday accurately hit expectations. This "reassurance" directly stabilized market sentiment. The decline in core inflation data supported the Fed's continued interest rate cuts in several years, pushing Wall Street stock markets to continue to be strong and reach record highs. Treasury yields gave up the gains that surged on Monday due to political pressure on the Federal Reserve.
The U.S. dollar index fell at the same time, and gold and silver continued to rise.
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