European Central Bankers Leave Jackson Hole Uneasy Over US Policy Moves

European central bankers are departing the annual Jackson Hole symposium with lingering concerns about the reliability of US economic policy and its potential to disrupt global markets, according to officials familiar with the discussions.

While Federal Reserve policymakers sought to reassure their European counterparts that all commitments would be honored, the sources noted that the Fed cannot guarantee against sudden policy shifts from the administration. The separation between the central bank and the executive branch limits the Fed's ability to provide such assurances.

A key point of friction was the recent US Treasury intervention to support the Japanese yen. European officials were particularly annoyed that the US did not provide a customary heads-up that the transaction involved selling euros. One source described the lack of communication as "infuriating," adding that a simple phone call would have been standard practice. The move was seen as a sign that the US is willing to act unilaterally.

Another concern is Treasury Secretary Scott Bessent's plan to increase buybacks of longer-dated bonds. European central bankers worry this indicates a willingness to take unusual measures to cap borrowing costs, potentially setting a precedent for further intervention. The officials fear this could lead to pressure on the Fed to purchase bonds, causing upheaval in markets beyond the US.

The sources also expressed worry about the potential for political meddling in the dollar liquidity backstops, known as swap lines, which are considered a cornerstone of global financial stability. While there has been no hint that these facilities are in danger, the officials noted that the administration's unpredictable nature means the lines could theoretically be at risk.

Despite these concerns, Fed Chairman Kevin Warsh has made efforts to foster good relations with European officials, leaving a positive impression. His recent trip to Europe and a photo opportunity with the Bank of Canada Governor were seen as notable gestures, even as trade tensions between the US and Canada escalate.