JACKSON HOLE: European central bankers are leaving the annual Jackson Hole economic gathering with growing concerns about the future of financial cooperation with the United States, amid disagreements over monetary policy, currencies and the direction of Washington’s economic strategy.
The concerns emerged during this year’s meeting of central bankers and economists in Wyoming, where the arrival of new Federal Reserve Chair Kevin Warsh has attracted considerable attention.
European officials are increasingly worried that U.S. economic policy could become less predictable and that tensions between Washington and its traditional financial partners could create additional volatility in global markets.
One major issue is currency policy.
U.S. Treasury Secretary Scott Bessent recently defended a rare U.S.-Japan currency intervention designed to prevent a sharp decline in the Japanese yen.
The yen had fallen to around 164 per dollar, a roughly 40-year low, before recovering. It has since returned toward the 160 level, raising speculation that further intervention could eventually become necessary.
Currency movements matter because sudden changes can trigger large financial transactions and force investors to unwind positions.
Bessent warned that disorderly yen movements could destabilize global markets and increase borrowing costs for American households and businesses.
European officials are also watching the Federal Reserve closely.
Warsh’s first major speech at Jackson Hole signaled a relatively firm approach toward inflation.
He said the Fed needs confidence that underlying inflation is moving toward its target clearly and at a sufficient pace. His comments increased expectations that U.S. interest rates could potentially rise at the Federal Reserve’s September meeting if inflation remains too high.
That would have international consequences.
Higher U.S. interest rates can strengthen the dollar, increase global borrowing costs and put pressure on emerging-market economies carrying dollar-denominated debt.
The situation is particularly important for Europe because European financial markets remain closely connected to the U.S. financial system.
European policymakers are also concerned about the broader question of central-bank independence.
The Federal Reserve has faced intense political scrutiny, making the issue of monetary-policy independence a major subject of discussion among international central bankers.
Warsh has attempted to reassure markets that monetary policy will remain focused on economic conditions rather than political considerations.
At the same time, global bond markets remain under pressure.
Long-term borrowing costs in several major economies have risen sharply, reflecting concerns about inflation, government debt and fiscal sustainability.
The growing uncertainty means central banks are facing an unusually difficult environment.
They must control inflation while avoiding unnecessary damage to economic growth, and they must also account for geopolitical risks ranging from the Middle East conflict to trade tensions.
For Europe, the concern is increasingly that financial turbulence in one major economy can rapidly spread across borders.
The Jackson Hole meeting therefore highlighted a broader reality: global monetary cooperation is becoming more complicated at exactly the moment when international markets need greater stability.
