FRANKFURT, Jan 13 (Reuters) - Central bank chiefs from around the world lined up in support of Federal Reserve Chair Jerome Powell on Tuesday, issuing an unprecedented statement of solidarity after the Trump administration threatened him with a criminal indictment.
Powell has been threatened with a probe over Congressional testimony he gave last summer about the renovation of the Fed's headquarters, which he has called a "pretext" to win presidential influence over interest rates.
"We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell," the heads of some of the world's largest central banks said in a rare joint statement.
Independence from government influence has been the key foundation of modern central banking. It remained the unquestioned standard until U.S. President Donald Trump started demanding lower rates and putting pressure on individual policymakers when they failed to oblige.
UNPRECEDENTED SUPPORT
The heads of the European Central Bank, the Bank of England, the Bank of Canada and eight other institutions said that Powell had acted with integrity and that central bank independence was crucial for keeping prices and financial markets stable.
"The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve," the statement said.
Sources close to the process said that ECB President Christine Lagarde, who signed on behalf of the euro zone's 21 central banks, was the key driver of the joint response, while much of the actual footwork to get individual governors on board was done by Pablo Hernandez de Cos, the general manager of the Bank for International Settlements, a central bank umbrella body.
The ECB and the BIS declined to comment.
Other signatories included the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France, as well as top officials at the BIS.
The Bank of Japan was notably absent from the list.
A spokesman for the BOJ said the bank refrained from commenting on other central banks' action.
A source close to the process said the BOJ had initially expressed support for the joint statement but was not yet ready to sign. The list is not considered final, however, and central bankers could still add their name, several sources said.
FEARS OF HIGHER INFLATION
The U.S. inquiry into Powell has already drawn criticism from the world of finance and also some key members of Trump's Republican Party.
Central bankers fear that political influence over the Fed would erode trust in the bank's commitment to its inflation target. This would lead to higher inflation and global financial market volatility.
Others worry that a politicized central bank may no longer provide a dollar backstop for financial institutions around the world, weaponizing these crucial funding lifelines normally used to calm markets during periods of stress.
The Fed now lends dollars to other central banks against collateral to maintain dollar liquidity, but some officials have been discussing possible contingencies in case the Fed changes tack.
While central banks could pool their own dollar reserves, this is seen as a stopgap measure that could help in case of isolated cases of stress but not during broader troubles.
Political influence over the Fed would likely rattle U.S. markets and push up domestic inflation, creating volatility the U.S. is bound to export to other parts of the world via financial markets.
This would then make it more difficult for others to keep prices stable and their own markets calm.
"It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability," the group of central bankers said.
Reporting by Balazs Koranyi and Francesco Canepa; editing by Mark John, Alex Richardson and Chizu Nomiyama
