European Central Bank Governing Council Member Rehn: The independence of the Federal Reserve faces the most severe test in decades, which will lead to "significant" risks
European Central Bank Governing Council member Olli Rehn stated that the independence of the Federal Reserve is facing the most severe test in decades, which will pose "significant" risks to the market and the economy. He emphasized that the independence of central banks is key to maintaining price stability, and the current political pressure in the United States may affect the credibility of the Federal Reserve. Rehn believes that the independence of the European Central Bank is legally protected and will not repeat the mistakes of the United States, but the situation in the U.S. may impact the independence of central banks in other countries
According to the Zhitong Finance APP, Olli Rehn, a member of the European Central Bank's Governing Council, stated that the independence of the Federal Reserve is facing its most severe test in decades, which will bring "significant" risks to the market and the economy.
"Since the control of double-digit inflation in the 1980s, the independence of the Federal Reserve has been regarded as an inviolable principle—now this principle is being undermined," the Finnish official pointed out in a speech on Thursday. "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 key to anchoring inflation expectations."
Rehn emphasized 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 disturbances.
Against the backdrop of U.S. President Donald Trump's ongoing pressure for interest rate cuts and escalating attacks on the Federal Reserve, many central bank officials have voiced their support for the Federal Reserve and its Chairman Jerome Powell. The conflict has further intensified recently: Trump attempted to dismiss Federal Reserve Governor Lisa Cook this week on the grounds of "forged mortgage documents."
Pablo Hernandez de Cos, the new General Manager of the Bank for International Settlements (BIS), also stated in his inauguration speech on Tuesday that central bank independence is crucial for controlling inflation and enhancing public welfare.
Rehn downplayed the possibility of Europe following the same path as the U.S., noting that Europe not only has a tradition of central bank independence, but this principle is also enshrined in EU treaties and has legal binding force.
"I don't think Europe will go down this road," he said, "but (the situation in the U.S.) will certainly have spillover effects through financial markets and political rhetoric, putting pressure on the independence of some countries' central banks."
Regarding inflation in the eurozone, Rehn mentioned that there is still uncertainty about the inflation trend in the coming months, and he and his colleagues at the European Central Bank are "closely monitoring the situation" and "ready to take action if necessary."
The market expects that the European Central Bank will keep the deposit rate unchanged at 2% for the second consecutive month in September to allow policymakers to assess the impact of the recent U.S.-Europe tariff agreement.
"However, the uncertainty caused by geopolitical and trade war influences still casts a shadow over the economic outlook," Rehn said. "In the short term, due to falling energy prices, a stronger euro, and slowing inflation in the service sector, inflation levels will fall below the 2% target."
