By Andrea Shalal and Francesco Canepa
WASHINGTON (Reuters) -The IMF’s chief economist, asked on Tuesday about U.S. President Donald Trump’s attacks on Federal Reserve Chair Jerome Powell, underlined the importance of preserving the independence of central banks to maintain their credibility in fighting inflation.
Pierre-Olivier Gourinchas said central banks faced a delicate moment in managing inflation, especially in countries like the United States where Trump’s tariffs on imported goods are expected to stoke inflation.
“The critical thing is to make sure that inflation expectations remain anchored, that everyone remains convinced that central banks will do what is necessary to bring inflation back to central bank targets in an orderly manner,” he said.
Central banks have tools to do this, including interest rate instruments, insurance and management policy, but their credibility plays a central role, Gourinchas said.
“So central banks need to remain credible, and part of credibility is built upon their central bank independence. And so from that perspective, it is very important to preserve,” he told reporters during the Spring Meetings of the International Monetary Fund and World Bank.
Trump has criticized the Fed for not cutting interest rates quickly enough, last week saying Powell’s termination could not happen soon enough. White House economic adviser Kevin Hassett said on Friday Trump and his team were continuing to study whether they could fire Powell, while Trump on Monday said the economy could slow down unless rates were lowered immediately.
Investors said they were starting to take the possibility seriously of an attempt to dismiss Powell despite the barriers to doing so.
It is unclear whether Trump would be legally allowed to remove Powell, who is appointed by the president but confirmed by the Senate. Trump’s push to oust members of other independent agencies is before the Supreme Court.
His repeated criticism of the Fed and its chair has spooked markets, pushing U.S. share prices lower on Monday, although they recovered some ground on Tuesday as investors focused on corporate earnings.
European Central Bank President Christine Lagarde, speaking in an interview with CNBC, underscored her support for Powell, whose term as chair ends in May 2026.
“We’re both used to political pressure in one way or another. But as I said, I have immense respect for the work that he does and for his loyalty to his job and to being as diligent, disciplined as possible to deliver on his mandate. For him, I think I’m sure, as it is for me, the mandate is our compass. We have to deliver on our mandate,” Lagarde said.
Asked if an attempt by the White House to remove Powell would pose a material risk to markets, Lagarde said:”I’m not going to comment on market reactions to hypotheticals that I hope are just not on the table.”
(Reporting by Andrea Shalal and David Lawder; editing by Chizu Nomiyama and Mark Heinrich)
Comments