"The US does whatever it wants"! At the Jackson Hole Symposium, the ECB grows increasingly uneasy about the stability of US-EU financial cooperation

According to The Smart Finance News, multiple informed sources revealed that European Central Bank officials felt far from reassured after exchanges with their US counterparts at the annual central bank symposium. They worry that long-standing conventions in global cooperation have been undermined and are concerned that already tense US-European relations will face further setbacks in the future.

This week, Federal Reserve policymakers made a special effort to calm their European colleagues' concerns, promising to honor all commitments. But during the intermission at the Jackson Hole Economic Symposium, several officials indicated that, given the separation between the Federal Reserve and the US administration, they could not guarantee that President Trump would not suddenly change policy.

These unnamed officials pointed out that recent US Treasury intervention in the foreign exchange market to support the yen, as well as moves to depress US long-term borrowing costs, are particularly worrying because they signal possible further interventions in the future and further break with convention.

After the yen operation on August 1, Treasury Secretary Bessent confirmed that the Treasury sold euros to buy yen and stated that he had assured regional central banks that the move was simply a "reallocation of resources." Last Friday, he said that the foreign exchange assets used to purchase yen came from the Treasury's Exchange Stabilization Fund.

However, sources said what European officials find particularly frustrating is that the US side did not inform them in advance, as customary, that euro sales would be part of the transaction. "It's infuriating," one official said, "You're always supposed to make a phone call first to let others know." "The signal it gives me is simply, the US will do whatever it wants."

Other officials were more lenient, believing this transaction was very special and might have truly been an oversight. Spokespersons for the European Central Bank and the Federal Reserve both declined to comment.

An American official stated that the US-Japan joint intervention was meant to address disorderly yen fluctuations and support global financial market stability. "This action is not targeted at any third party," the official said, "The Treasury maintains close and ongoing communication with our international peers, but we do not comment on the operational details discussed."

US Treasury Repo Sparks New Concerns

Sources also said that Bessent's plan to increase repo operations for longer-term Treasury bonds—possibly to be funded by issuing more short-term Treasury bills—has worried European Central Bank officials, as it, like the yen purchase, indicates the US government is willing to take unconventional steps to lower borrowing costs.

"Such interventions usually only provide temporary relief," a second source said. "But they are clearly very worried. So what happens next? Will they pressure the Federal Reserve to start buying bonds in the market?"

While the Federal Reserve is the sole monetary policy-making body in the US and is designed to be independent of the elected government, the sources pointed out that Trump has already shown he is willing to take extreme measures to get his way. They are concerned that this could cause market turmoil, with an impact far beyond the US itself.

In response, the above US official reiterated previous statements: increasing long-end bond repos is intended to provide greater liquidity for the long-term bond market, where the Treasury can obtain high-quality repo quotes. "This is not monetary policy, nor is it an attempt to cap interest rates," the official said.

However, last Thursday, a US Treasury official candidly admitted in an interview that the Treasury is "indeed focused on depressing longer-term yields" because those yields have risen above what the department considers "fair value."

Are Swap Lines Facing Political Risks?

Some sources also pointed out that another concern in Europe is that political interference could eventually affect the Federal Reserve's dollar liquidity support mechanism to major global central banks. These swap lines are seen as a cornerstone of global financial stability, ensuring that global commercial banks can continuously access US dollars, especially during periods of financial stress.

The Federal Reserve renews this arrangement every year, on the condition that it actually maintains US interests and market stability, since in times of global market turmoil, if overseas banks cannot access dollars, they may be forced to sell US Treasuries.

"But rationality does not always prevail in this administration," a third source said. "When they've enacted retaliatory trade policies against their closest allies, Trump may well just say, 'Hey, they're taking advantage of us,' and these swap lines could be gone overnight."

Sources said that currently there is no indication that these support mechanisms are in danger, and they still expect the arrangements to remain unchanged. The swap lines are authorized by the Federal Open Market Committee itself and operated entirely by the Federal Reserve, not the Administration.

"Decisions regarding Federal Reserve facilities and swap arrangements are made by the Federal Reserve," the Treasury official stated. "Anything the Treasury announced regarding yen operations or debt repos does not imply any other meaning."

The official added that Bessent looks forward to discussing financial stability issues later this week in Asheville, North Carolina, with G20 finance ministers and central bank governors, to further advance the administration’s agenda of isolating Iran, promoting growth, and reducing global imbalances.

Sources stated that Federal Reserve Chair Walsh traveled to Europe just over a month after taking office, deliberately building good relationships with local officials and leaving mainly a positive impression. During his first appearance as Federal Reserve leader at the Jackson Hole conference, he also took the routine group photo with Bank of Canada Governor Tiff Macklem. While a small gesture, it remains notable, since Trump is currently locked in an escalating and fierce trade war with Canada.