<\/p>\n
Central bankers from around the world have issued a joint statement of support for US Federal Reserve Chair Jerome Powell, as he faces a criminal probe on top of mounting pressure from US President Donald Trump to resign early.<\/p>\n
It is very unusual for the world\u2019s central bank governors to issue such a statement. But these are very unusual times.<\/p>\n
Listen\/ read: The importance of Federal Reserve independence<\/p>\n
The reason so many senior central bankers \u2013 from Australia, Brazil, Canada, Europe, New Zealand, South Africa, South Korea, the United Kingdom and other countries, as well as the central banks\u2019 club the Bank for International Settlements \u2013 have spoken up is simple. US interest rate decisions have an impact around the world. They don\u2019t want a dangerous precedent set.<\/p>\n
Over the course of my career as an economist, much of it at the Reserve Bank of Australia and the Bank for International Settlements, I have seen independent central banks become the global norm in recent decades.<\/p>\n
Allowing central banks to set interest rates to achieve inflation targets has avoided a repeat of the sustained high inflation which broke out in the 1970s.<\/p>\n
Returning the setting of monetary policy to a politician, especially one as unpredictable as Trump, is an unwelcome prospect.<\/p>\n
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CONTINUE READING BELOW<\/p>\n<\/div>\n<\/div>\n
Trump has repeatedly attacked the US Federal Reserve (known as the Fed) over many years. He has expressed his desire to remove Powell before his term as chair runs out in May. But legislation says the president can only fire the Fed chair \u201cfor cause\u201d, not on a whim. This is generally taken to mean some illegal act.<\/p>\n
The Supreme Court is currently hearing a case about whether the president has the power to remove another Fed board member, Lisa Cook.<\/p>\n
And this week, Powell revealed he had been served with a subpoena by the US Department of Justice, threatening a criminal indictment relating to his testimony to the Senate banking committee about the $2.5 billion renovations to the Fed\u2019s historic office buildings.<\/p>\n
Trump has denied any involvement in the investigation.<\/p>\n
But Powell released a strong statement in defence of himself. He said the reference to the building works was a \u201cpretext\u201d and that the real issue was:<\/p>\n
\nwhether the Fed will be able to continue to set interest rates based on evidence and economic conditions \u2013 or whether monetary policy will be directed by political pressure or intimidation.<\/p>\n<\/blockquote>\n