The credibility of the Fed, the world’s most powerful financial institution, is at stake

Interest rates are soaring in the United States and Europe, reaching levels not seen for two or even three decades. If the increase in debts, particularly across the Atlantic, is at the heart of the problem, another dizzying question is shaking up the financial world: is the American Federal Reserve (Fed, central bank), undoubtedly the most important financial institution in the world, on which American interest rates and by extension those of all other countries depend, still credible? For more than five years, inflation in the United States has exceeded its official target of 2%, raising questions at the highest level about its monetary seriousness.

Added to this are the political blows from Donald Trump, who violently attacked Jerome Powell, the previous president of the Fed. His successor, Kevin Warsh, who took office on May 22, arrives under suspicion of being in the service of the American president, far from the independence normally required for such a position.

Finally, Mr. Warsh’s beginnings were particularly chaotic. His second press conference, on July 29, provoked a strong reaction on the financial markets, including a sharp increase in interest rates on long-term American debt. “His speech at Jackson Hole (in Wyoming, August 28 during the Fed summer seminar) will be crucial »estimates Patrick Krizan, specialist in monetary issues at Allianz Investment Management, the asset management branch of the German insurer. For him, the worm is in the fruit: “We are not witnessing an implosion of the Fed’s credibility, but an erosion. »

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