Europe’s central bankers fear more turbulence in testy US relations

European central bankers expressed concern about potential political interference in US monetary policy during their annual meeting with their US counterparts at the Jackson Hole Economic Symposium. They feared that such interference could undermine the Federal Reserve's dollar liquidity backstops, a crucial component of global financial stability.

Fed policymakers reassured their European counterparts that the administration's commitments would be honored, but acknowledged that sudden policy shifts by President Trump could not be guaranteed. Recent US Treasury interventions to support the Japanese yen and lower longer-term US borrowing costs raised particular concerns among European officials, who viewed them as potential precedents for further intervention.

They also expressed frustration that the US did not notify them in advance of euro sales as part of the yen transaction. European central bankers were particularly worried that political meddling could eventually lead to the termination of the Federal Reserve's dollar liquidity backstops, which are considered essential to global financial stability.

While the Fed's swap lines are authorized by the Federal Open Market Committee and operated by the Fed, not the administration, European officials were not fully reassured and hoped to discuss these issues further with G20 finance ministers and central bank governors.