European Central Bankers Express Concern Over Unpredictable U.S. Policy Shifts

European Central Bankers Anxious Over Unpredictable U.S. Policy at Jackson Hole

Concerns Rise Among European Central Bankers Over U.S. Policy Shifts

By Balazs Koranyi, Howard Schneider and Ann Saphir

JACKSON HOLE, Wyoming, Aug 30 (Reuters) – European central bankers left an annual gathering with their U.S. counterparts feeling far from reassured that long‑standing norms of global cooperation remain intact. Sources familiar with the discussions said the officials are worried about further turbulence in an already strained relationship with Washington.

Federal Reserve policymakers went to great lengths to ease their counterparts’ concerns this week, pledging to honor all existing commitments.

Nevertheless, given the separation between the central bank and the administration, they could offer no guarantees against abrupt policy shifts by President Donald Trump. More than half a dozen officials on the sidelines of the Kansas City Fed’s annual Jackson Hole Economic Symposium voiced this concern.

Unilateral U.S. Actions and Communication Breakdowns

Recent U.S. Treasury interventions to support the Japanese yen and to lower longer‑term borrowing costs were especially worrying, as they signaled a potential increase in unconventional actions and departures from established norms. The officials, who asked not to be named, shared these observations.

After the August 1 yen transaction, Treasury Secretary Scott Bessent confirmed that the department had sold euros to purchase yen, describing the move as “just a reallocation of resources.” He later clarified that the foreign‑exchange assets used for the yen purchase came from the Treasury’s Exchange Stabilization Fund.

European Frustration Over Lack of Notification

European officials were particularly annoyed that the United States did not provide the customary heads‑up that euro sales were part of the transaction, according to the sources.

“That was infuriating,” one source said. “You always pick up the phone and give heads‑up.”

“The message to me is that the U.S. does whatever it wants,” another remarked.

Other participants were more forgiving, suggesting the unusual nature of the transaction might have been an honest oversight.

Spokespeople for the European Central Bank and the Federal Reserve declined to comment.

A U.S. official said the U.S.–Japan intervention was undertaken to counter disorderly movements in the yen and to promote stability in global financial markets.

“It was not directed at anyone else,” the official stated. “Treasury maintains close and ongoing communication with our international counterparts, but we do not comment on the operational details of those discussions.”

Debt Buyback Concerns

Implications of U.S. Debt Buyback Plans

The sources also noted that Secretary Bessent’s plan to increase buybacks of longer‑dated bonds—transactions that may require issuing more short‑term maturities—was another source of concern for European central bankers. Like the yen purchase, it signals the administration’s willingness to take extraordinary steps to cap borrowing costs.

“These interventions normally offer just temporary relief,” a second source observed. “But they are clearly worried. So what is next? Will they pressure the Fed to start buying bonds on the market?”

Potential Market Upheaval

Although the Fed is the sole U.S. monetary policymaking body and operates independently of the elected administration, the sources said President Trump has demonstrated a willingness to go to extraordinary lengths to achieve his policy goals.

They fear this could trigger market volatility that would extend well beyond U.S. borders.

The U.S. official reiterated earlier statements that the expanded long‑end bond buybacks aim to provide greater liquidity in sectors where the Treasury receives high‑quality offers.

“They are not monetary policy or an effort to impose a cap on interest rates,” the official emphasized.

On Thursday, however, a Treasury official told reporters the department was “really focused on bringing those long‑end yields lower” because they had risen above what the department considered “fair value.”

Swap Lines at Risk?

Concerns Over Dollar Liquidity Backstops

Another worry among European officials is that political interference could eventually affect the dollar liquidity backstops provided by the Fed to major central banks—facilities regarded as a cornerstone of global financial stability, several sources said.

These swap lines ensure that commercial banks worldwide retain access to U.S. dollars during periods of financial stress.

The Fed renews this arrangement annually, operating on the principle that it safeguards U.S. interests and markets, as overseas banks could otherwise be forced to sell U.S. bonds in times of turmoil.

Potential Political Interference

“But rationality doesn’t always prevail with this administration,” a third source noted. “When they pursue retaliatory trade policies with their closest allies, Trump could simply say, ‘Hey, they’re ripping us off,’ and the swap lines could disappear overnight.”

The sources said there has been no indication that these backstops are in danger, and they continue to expect them to remain unchanged. The swap lines are authorized by the Federal Open Market Committee and operated exclusively by the Fed, not the administration.

“Decisions concerning Federal Reserve facilities and swap‑line arrangements rest with the Federal Reserve,” the Treasury official said. “Nothing Treasury has announced regarding yen operations or debt buybacks suggests otherwise.”

Looking Ahead: G20 and International Relations

The official added that Secretary Bessent looks forward to discussing financial‑stability issues with G20 finance ministers and central‑bank governors in the coming days in Asheville, North Carolina. He aims to advance the administration’s agenda on isolating Iran, fostering growth, and reducing global imbalances.

Efforts to Maintain Transatlantic Relations

Fed Chairman Kevin Warsh traveled to Europe shortly after taking office, going out of his way to foster positive relations with European officials. The sources reported that he left a predominantly favorable impression.

In his debut appearance at Jackson Hole as Fed leader, he also posed for photographs.

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