Former European Central Bank official voices support for Powell, saying that weakening central bank independence could jeopardize the global financial system.

Former European Central Bank President Trichet, in an interview, bluntly stated that the continued criticism of the Federal Reserve by US President Trump could have "serious consequences" for the global financial system, shaking the consensus on central bank independence that has been formed by developed economies for nearly 50 years. Trichet, also a former Governor of the Bank of France, said that the Trump administration is trying to "change the rules of the game" by weakening central bank independence to influence monetary policy. Last weekend, Federal Reserve Chairman Powell revealed that the US Department of Justice has launched a criminal investigation into the $25 billion renovation project of the Federal Reserve headquarters. Powell stated that this move has clear political motives, stemming from the Federal Reserve's refusal to cut interest rates faster and by a larger amount as demanded by Trump. On Tuesday, several global central bank leaders including Bank of England Governor Bailey and European Central Bank President Lagarde, voiced their support for Powell. Trichet likened Powell's situation to that of some emerging markets with weak institutions, warning that the current situation is "extremely serious." He pointed out, "A Federal Reserve that becomes the most obedient servant of the executive branch is not in line with the expectations of the US Constitution. The Federal Reserve depends on Congress, not the executive branch." Finnish central bank Governor Rehn also emphasized that central bank independence is the "cornerstone" of financial and price stability. He warned that if the credibility of the Federal Reserve is damaged, it could trigger structural upward risks in global inflation, given the systemic importance of the US in the global economy, and its impact could spill over to major economies including Europe. "This will undoubtedly have global implications, and all of us must consider this in our decision-making to maintain price stability and broader economic stability." Trichet also pointed out that the "highly fragile" state of the US at the fiscal and political level is worsening. He mentioned that the long-standing bipartisan consensus in the US is "to continuously increase spending," making investors increasingly cautious about financing the fiscal deficit and high corporate debt as a percentage of GDP. "The situation in the US to some extent also reflects the current state of the global economy," Trichet said. "Whether in the public or private sector, the current level of debt as a percentage of GDP is higher than before the collapse of Lehman Brothers. The market appears too calm in facing these risks." He warned that if the Federal Reserve is forced to become the "most obedient servant" of the President, it will have "extremely destructive effects" on global economic and financial stability. "We are in a highly fragile stage of the global economy, which is why the destruction of the relationship between the US executive branch and the Federal Reserve is extremely worrying." Meanwhile, Citigroup (C.US) also stated in its latest report that the risk of populism governments impacting central bank independence may spread from the US to other countries. As the weighted average maturity of UK and European government bonds continues to shorten, investors' interest in long-term bonds such as 30-year bonds is decreasing, making the interest cost of government debt more sensitive to changes in policy rates. Citigroup believes that this may increase the possibility of populist governments pressuring central banks and demanding interest rate cuts in the future. The report warns that although the independence of the European Central Bank and Bank of England is not currently being questioned, "in the long term, this should not be taken for granted."