With just two days to go for the Federal Reserve’s highly anticipated interest rate decision, former European Central Bank (ECB) President Jean-Claude Trichet has a message for chair Janet Yellen – ignore the International Monetary Fund (IMF) and World Bank’s warnings around the dangers of monetary tightening and keep all options on the table.
“The Fed has to be independent of the self-appointed good advisers,” Trichet told CNBC on Tuesday. “It is part of the credibility of the monetary policy.”
In early September, both the World Bank and the IMF cautioned the U.S. central bank against raising rates until the world economy was on a surer footing. Their warnings followed a summer of turmoil in global markets, triggered by jitters over China’s deteriorating economic outlook and the prospect of higher borrowing costs in the world’s largest economy.
“They can give good advice on a more medium term basis, but not on a precise decision at a certain moment,” Trichet said. “I really think it is not their mandate, to do that.”
If the Fed does decide with “lift-off” this week, it shouldn’t catch anyone off guard, he added.
“They were, in my opinion, very clear in warning the market that an increase of rates was likely, so nobody would say in the market that they were not warned in advance.”