ECB Governing Council member Rehn warned: The independence of the Federal Reserve, as the "anchor" of inflation expectations, may be undermined, potentially triggering significant market turmoil
European Central Bank Governing Council member Olli Rehn warned that the independence of the Federal Reserve faces significant challenges, which could pose great risks to the market and the economy. He pointed out that the independence of the Federal Reserve has been regarded as an inviolable principle since the 1980s, but it is now being undermined. Rehn emphasized that the independence of central banks enhances the effectiveness of monetary policy and stated that he will closely monitor the inflation situation in the eurozone, expecting inflation levels to fall below 2% in the coming months
According to the Zhitong Finance APP, Olli Rehn, a member of the European Central Bank's Governing Council, warned that the independence of the Federal Reserve is facing its first significant challenge in decades, which could pose "huge" risks to the market and the economy.
The Finnish official pointed out in a speech on Thursday: "Since the control of double-digit inflation in the 1980s, the independence of the Federal Reserve has been regarded as an inviolable principle—this principle is now being undermined. When a central bank gains trust, the public, businesses, and financial markets believe it will adhere to its price stability goals, and this trust is the 'anchor' of inflation expectations."
Rehn further stated during his speech in Turku, Finland, that the credibility brought by independence can enhance the effectiveness of monetary policy, meaning that the central bank does not need to take "aggressive" measures in response to temporary economic fluctuations.
In the face of escalating pressure from U.S. President Trump (whose core demand is for interest rate cuts), many central bank officials have expressed support for the Federal Reserve and its Chairman Jerome Powell. In a recent conflict, Trump attempted to dismiss Federal Reserve Governor Cook this week, citing allegations of falsifying mortgage documents.
Additionally, Pablo Hernandez de Cos, the newly appointed General Manager of the Bank for International Settlements, also delivered his first speech on Tuesday after taking office. He emphasized that central bank independence is crucial for curbing inflation and enhancing public welfare.
Regarding the inflation situation in the Eurozone, Rehn stated that the trends in the coming months remain uncertain, and he and his colleagues at the European Central Bank are "closely monitoring the situation" and "ready to take action if necessary."
Currently, the market generally expects that the European Central Bank will maintain the deposit rate at 2% for the second consecutive month in September, as policymakers need to assess the impact of the recent tariff agreement reached between Europe and the United States.
Rehn noted: "Nevertheless, geopolitical influences and the uncertainties brought about by trade wars still cast a shadow over the economic outlook. In the short term, inflation levels are expected to fall below the 2% target due to factors such as declining energy prices, a stronger euro, and slowing inflation in the services sector."
