A line drawn around the Fed

A rare and pointed show of solidarity from the world’s leading central bankers has thrown the spotlight onto a moment that London Business School Professor Richard Portes describes as potentially “seismic” for the global financial system.

Speaking on Bloomberg Surveillance with Tom Keene, Portes responded to an unprecedented letter led by European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, in which senior central bankers voiced “full solidarity” with US Federal Reserve Chair Jerome Powell. The letter praised Powell’s integrity, his adherence to the Fed’s mandate, and his commitment to the public interest.

For Portes, the significance of the moment goes far beyond personal support for Powell. What is under threat, he argued, is the institutional independence of the Federal Reserve itself.

“This is a major, major attack,” Portes said. “Not just on a man of unparalleled integrity in his post, but on the institution, on the Fed itself.”

While debate over the scope and mandate of central banks is legitimate, Portes drew a sharp distinction between democratic scrutiny and direct political control. The latter, he warned, crosses a line that has defined modern monetary credibility for decades.

“This is something quite different,” he said. “This is where the president of the United States, through his minions, is seeking to take control of monetary policy. And whatever you think about what the Fed has done, or might do in future, that is unacceptable.”

Keene compared the moment to the 1951 Treasury–Federal Reserve Accord, when the Fed formally secured its independence from the US Treasury. Portes agreed the parallel was not overstated.

“Potentially quite, yes,” he said. “Absolutely.”

At the heart of the issue, Portes argued, is trust. Central bank credibility, once damaged, is extraordinarily difficult to restore.

“If the president were to have his way,” he said, “you would see a real deterioration in the way that monetary policy is run in the United States. And once reputation and trust are imperiled, they are very, very hard to repair.”

The implications would not stop at US borders. Because of the Federal Reserve’s central role in global liquidity and financial markets, any erosion of its independence would reverberate through money markets worldwide.

That global exposure explains the unusually direct intervention from overseas central bankers. Yet Portes was sceptical that international opinion would influence President Trump’s approach.

“He doesn’t care what the foreigners think,” Portes said bluntly. “That’s clear, one way or another.”

Where the letter may have real impact, he suggested, is closer to home. It could influence sentiment in the US Senate, which plays a decisive role in confirming Federal Reserve appointments, and among market participants who have so far remained conspicuously quiet.

“The financial sector in New York has been very silent,” Portes noted. “Where are these guys? They’re scared. They’re all scared.”

That silence may be beginning to crack. Keene pointed to signs of resistance within the Republican Party itself, with several senators indicating they would not support a new Fed chair nomination until legal questions surrounding Powell were resolved. Portes agreed this domestic pushback carries far more weight than foreign criticism.

“Certainly,” he said. “Absolutely.”

The discussion turned finally to whether the pressures seen in the United States could translate to parliamentary systems, including the UK. Portes pointed to Britain’s own history as a cautionary tale.

Until 1997, the Bank of England operated under direct Treasury control. Granting it operational independence was one of the first acts of the incoming Blair government, a move Portes described as transformative.

“We had an inflationary boom at the end of the 80s precisely because the Chancellor wanted expansion,” he said. “So we had a very loose monetary policy. And guess what? We had this inflationary boom.”

The lesson, Portes suggested, is clear. Central bank independence is not an abstract constitutional nicety but a hard-won safeguard against short-term political pressure with long-term economic costs.

As global central bankers close ranks, the question now is whether institutional norms built over decades can withstand sustained political assault. For Portes, the stakes could hardly be higher.