Central bank chiefs, bank CEOS back Fed's Powell after Trump administration threat

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Powell threatened with indictment over Fed renovation

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Statement in support of Fed chief signed by 11 central bank peers

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Trump continues to pressure Fed to lower interest rates

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Latest move could have 'reverse consequences,' JPMorgan's Dimon warns

By Balazs Koranyi and Manya Saini

Jan 13 (Reuters) - Global central bank chiefs and top Wall Street bank CEOs lined up in support of Federal Reserve Chair Jerome Powell on Tuesday in an outpouring of solidarity after the Trump administration threatened him with a criminal indictment, a move the U.S. central bank chief called out as intimidation. The reaction - evidence ?of the relationships Powell has built during his years at the Fed and of the importance of the central bank to global financial markets - follows pushback from several lawmakers in President Donald Trump's Republican Party ?on Monday, including members of the Senate Banking Committee who have the power to block the president's nomination of a more biddable successor to Powell. The ?current Fed chief's term ends in May. Powell revealed late on Sunday the U.S. central bank had received ?subpoenas from the U.S. Justice Department about ?what he told Congress regarding the $2.5 billion renovation of the Fed's headquarters in Washington. Powell said the probe was a pretext meant to pressure the central bank to slash interest rates, as Trump has long ?wanted. "We stand in full solidarity with the Federal Reserve System and its Chair Jerome ?H. Powell," the heads of 11 of the world's largest central banks said in a rare joint statement.

"Everyone we know believes in Fed independence," JPMorgan CEO Jamie Dimon told reporters on a conference call on Tuesday. "This (probe) is probably not a ?great idea, and in my view it will have the reverse consequences of ?raising inflation expectations and ?probably increase rates over time." Independence from government influence has been the key foundation of modern central banking. It remained the unquestioned standard until Trump started demanding lower rates and putting pressure on individual policymakers when they failed to oblige. Trump on Tuesday again demanded Powell lower interest ?rates "meaningfully" after a government report showed consumer prices rose 2.7% in December from a year earlier. The president was slated to visit a Ford truck factory in Detroit to put a spotlight on U.S. manufacturing and his efforts to tackle high consumer costs.

Meanwhile traders kept bets that still-too-high inflation would keep the Fed on hold regarding rates until June.

UNPRECEDENTED SUPPORT FROM POWELL'S PEERS

The heads of the European Central Bank, the Bank of England, the Bank of Canada and eight other institutions said 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.

Other signatories included the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France, as well as top officials at the Bank for ?International Settlements.

Central bankers fear that political influence over the Fed would erode trust in the central bank's commitment to its inflation target, leading to higher inflation and global financial market volatility.

Others worry that a politicized Fed may no longer provide a dollar backstop for financial institutions around the world, weaponizing these crucial funding lifelines that normally are used to calm markets during periods of stress.

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.

Such a development would make it more difficult for others to keep prices stable and their own markets calm.

"Independent central banks with the ?ability to independently set monetary policy in the long-term interests of the nation is a pretty well-established thing that we've seen all around the world over a very long period of time," BNY CEO Robin Vince told reporters on a call.

"Let's not shake the foundation of the bond market and potentially do something that could cause interest rates to actually get pushed up because somehow ?there's lack of confidence in the Fed's independence," Vince said. (Reporting by Balazs Koranyi, Francesco Canepa, Manya Saini, Saeed Azhar, Ateev Bhandari and Howard Schneider; Editing by Paul Simao)