Cracks at Jackson Hole: The U.S. sold euros to buy yen without notifying, while the European Central Bank is worried that the dollar swap facility may "disappear overnight."

The Jackson Hole global central banking conference has concluded, leaving European Central Bank (ECB) officials feeling uneasythey remain far from convinced that the long-standing global cooperation norms are intact and are concerned that their already strained relations with Washington may face further turbulence. According to a Reuters report on August 30, the trigger was two unconventional actions recently taken by the U.S. Treasury: selling euros and buying yen on August 1 without the usual advance notice, to support the yen, and planning to increase long-term Treasury buybacks to lower borrowing costs at the long end. Several European officials privately described this raid as "outrageous." Deeper concerns revolve around the possibility that the Trump administration might extend political interference to the dollar swap linesconsidered a cornerstone of global financial stability. Officials have warned that these swap lines could "vanish overnight." Although Federal Reserve policymakers have worked hard this week to reassure their European counterparts, with Chair Waller promising to fulfill all commitments and demonstrating goodwill by posing for a photo with the Governor of the Bank of Canada, the Fed cannot provide absolute assurances against sudden policy shifts from the Trump administration due to the institutional separation between central banks and the executive branch. The Unannounced Call: The Euro Sale Without Prior Notice Reports indicate that in the yen intervention transaction on August 1, the U.S. Treasury sold euros and bought yen. Secretary of the Treasury Yellen later confirmed this operation, stating that she had assured the regional central banks that it was merely a "resource reallocation"; she also mentioned that the foreign exchange assets used for purchasing yen came from the Exchange Stabilization Fund (ESF). What particularly angered European officials was that the U.S. did not follow the established custom of providing advance notice that the euro sale was part of the transaction. According to media reports, an informed official remarked that this was infuriating; one should always pick up the phone to give a heads-up. Another bluntly stated: The signal it sends is that the U.S. can do whatever it wants. Some officials were more forgiving, suggesting that the transaction was so unusual it might have been an unintended oversight. A U.S. official responded, saying the U.S.-Japan intervention was meant to address disorderly fluctuations in the yen and support global financial market stability, and that it was "not aimed at anyone else." The Treasury continues to maintain close communication with its counterparts but does not comment on operational details. Additionally, Yellen's plan to increase long-term Treasury buybacks (which may require issuing more short-term Treasuries for financing) has also raised concerns among ECB officialssimilar to the yen purchase, it suggests the government is willing to take unconventional measures to lower borrowing costs. Reports indicate that one source said: "These interventions are usually only a temporary relief, but they are clearly very concerned. What will happen next? Will they pressure the Fed to start buying bonds in the market?" Despite the fact that the Federal Reserve is the sole monetary policy decision-making body in the U.S. and is designed to be independent from elected governments, reports suggest that sources have indicated that Trump has shown a willingness to achieve his aims at any cost, leading European officials to worry this could trigger market turmoil far exceeding U.S. borders. U.S. officials reiterated that the increase in long-term Treasury buybacks aims to provide more liquidity to the long-term sector and is "not a monetary policy, nor is it a cap on interest rates." However, Treasury officials stated on Thursday that the department is "truly focused on lowering long-end yields," as rates have risen above what they consider "fair value." Concerns About the "Overnight Disappearance" of Swap Lines Another layer of concern for European officials is that political interference could ultimately impact the dollar liquidity backstop that the Fed provides to major global central banks through dollar swap linesviewed as a cornerstone of global financial stability. These swap lines ensure that global commercial banks maintain access to dollars, particularly in times of financial stress. The Fed renews this mechanism annually, provided it actually safeguards U.S. interests and marketsbecause foreign banks might be forced to sell U.S. Treasuries during global turmoil. Reports indicate that one source stated: "But this administration is not always rational, and when they implement retaliatory trade policies against their closest allies, Trump might say 'they are extorting us,' and the swap lines could vanish overnight." However, sources also indicated that there are currently no signs suggesting these backstop mechanisms are in danger and still expect them to remain unchangedthe swap lines are authorized by the Federal Open Market Committee (FOMC) and operated solely by the Federal Reserve, not the government. Treasury officials also responded: "The decision-making authority regarding Fed tools and swap line arrangements lies with the Federal Reserve; any announcements by the Treasury regarding yen operations or debt buybacks do not imply otherwise." Waller's Reassurance Amid Persistent Expectations Gap Facing concerns from European counterparts, Federal Reserve policymakers have worked hard this week to alleviate fears, pledging to fulfill all commitments. Reports indicate that just over a month after taking office, Fed Chair Waller visited Europe, striving to build good relationships with local officials, leaving an overall positive impression. In his first Jackson Hole conference as Fed leader, he posed for a photo with Tiff Macklem, the Governor of the Bank of Canadaa small yet significant gesture given that Trump is engaged in an escalating, intense trade war with Canada. However, given the institutional separation between central banks and the executive branch, Fed officials cannot provide absolute assurances against sudden policy shifts from President Trump. Yellen looks forward to discussing financial stability in Asheville, North Carolina, with G20 finance ministers in the coming days to further advance the government agenda. Analysis suggests that the aftermath of the Jackson Hole conference is not yet settled, and the restoration of mutual trust among central banks across the Atlantic will require time for further testing. This article is reproduced from "Wall Street Watch," author: Dong Jing; GMTEight editor: Chen Siyu.