FRANKFURT, Feb 12 (Reuters) - A loss of independence at the U.S. Federal Reserve could raise political pressure on central banks all around the world and boost inflation for everyone, Bundesbank
Bundesbank Warns: Fed's Loss of Independence May Fuel Global Inflation
Impact of Fed Independence on Global Inflation
FRANKFURT, Feb 12 (Reuters) - A loss of independence at the U.S. Federal Reserve could raise political pressure on central banks all around the world and boost inflation for everyone, Bundesbank President Joachim Nagel said on Wednesday.
Political Pressure on Central Banks
U.S. President Donald Trump has put relentless pressure on the Fed to cut interest rates and last month picked former Federal Reserve Governor Kevin Warsh to lead the bank from May, all in the hopes he would reduce the Fed's market footprint and lower borrowing costs.
ECB's Position on Independence
"If this political pressure succeeds, it could be taken as a blueprint for politicians in other countries to pursue similar policies," Nagel said. "If that were to happen, inflation levels could increase all over the world."
Global Economic Interconnections
While central bankers, including ECB chief Christine Lagarde and Bank of England Governor Andrew Bailey have welcomed Warsh's nomination, pressure on the Fed is expected to remain high, especially if the bank pauses policy easing until mid-year, as markets now expect.
Nagel said that the ECB's own independence is well protected but policymakers should not be overly complacent.
"Since the world economy is interconnected, political pressure in one country could make pursuing price stability more difficult for the Eurosystem as well," he said.
The ECB has been keeping inflation at its 2% target for nearly a year now, an enviable position as most major central banks are struggling to hit their own objective.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
