Trump's challenge to Fed independence holds global risk, ECB's Rehn says

HELSINKI, Aug 28 (Reuters) - President Donald Trump's escalating attacks on the U.S. Federal Reserve could have substantial and global knock-on effects on the financial markets and the real economy, ECB policymaker Olli Rehn said in a speech on Thursday.

Uncertainty surrounding the world's most important monetary authority, the Federal Reserve, has risen this year as Trump repeatedly criticised its Chair Jerome Powell and on Monday announced he was firing one of its governors, Lisa Cook.

The Fed's independence has remained an inviolable principle since the 1980s, Finland's central bank governor said.

"Now, however, this principle is wobbling badly. This could have substantial, global knock-on effects on both the financial markets and the real economy," Rehn said.

He said Europeans should take action to boost global confidence in the euro as a safe currency in order to avoid similar deterioration of central bank autonomy in Europe.

"It's no mere coincidence that euro area inflation is now at the 2% target — it is indeed connected to the central bank's independent decision-making," he said.

While the euro area's growth has proved more resilient than expected, Rehn said inflation was set to slow below the 2% target in the short term, due to cheaper energy, a stronger euro, and a slowdown in services inflation.

"In the ECB's Governing Council, we are closely monitoring the economic situation and stand ready to act if needed," Rehn said.