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2025-09-18 07:50:42
German Central Bank President: Trump's Attacks on the Fed Could Threaten US Stability and Prosperity 1. German Central Bank President Joachim Nagel warned on Wednesday that undermining the Federal Reserve's independence could backfire, effectively raising borrowing costs and encouraging other governments to interfere in central bank affairs. US President Trump has been applying unprecedented pressure on the Fed to aggressively cut interest rates, attempting to fire a Fed governor, and initiating discussions about replacing Fed Chair Jerome Powell. In a speech in Frankfurt, Nagel said that if the Fed's independence were permanently undermined politically, the consequences would be severe, jeopardizing US economic and financial stability and prosperity. 2. Nagel praised Powell's handling of the conflict, saying that if external attacks cast doubt on the Fed's commitment to price stability, long-term borrowing costs would actually rise, further increasing borrowing costs for governments, even if the Fed cuts interest rates. "There are signs that the attacks on the Fed have led to a steeper U.S. Treasury yield curve... with lower short-term yields and higher long-term yields," Nagel said. "It shows that financial markets certainly understand the importance of central bank independence." The broader problem is that government intervention in the Fed could set a precedent, prompting other countries to pressure their central banks to cut interest rates more than is reasonable, thereby endangering financial stability.
