"The U.S. can do whatever it wants!" At the Jackson Hole meeting, the European Central Bank is increasingly uneasy about the stability of U.S.-Europe financial cooperation.

According to multiple informed sources, officials from the European Central Bank (ECB) left the annual central bank meeting feeling far from reassured after discussions with their U.S. counterparts. They are concerned that the norms of global cooperation observed over the long term have been undermined and worry that the already tense U.S.-European relationship will face further turbulence in the future. Federal Reserve decision-makers deliberately sought to ease the concerns of their European counterparts this week by promising to fulfill all commitments. However, during the break at the Jackson Hole Economic Symposium, several officials indicated that due to the separation between the Fed and the U.S. administration, they could not guarantee that President Trump would not suddenly alter policies. These unnamed officials pointed out that recent U.S. Treasury interventions in the currency market to support the yen and to lower longer-term borrowing costs in the U.S. are particularly concerning, as they suggest more interventions may be forthcoming, further breaking norms. Following the yen operation on August 1, Treasury Secretary Mnuchin confirmed that the Treasury sold euros to buy yen and stated that he had assured central banks in the region that this action was just a reallocation of resources. Last Friday, he added that the foreign exchange assets used to purchase yen came from the Treasury's currency stabilization fund. However, sources revealed that European officials were particularly unhappy that the U.S. did not inform them in advance, as is customary, that the sale of euros was part of this transaction. This is infuriating, said one official. You should always give a heads-up first. The signal this sends to me is that the U.S. will do whatever it wants. Other officials were more tolerant, suggesting that this transaction was quite special and may indeed have been an oversight. Spokespeople for both the ECB and the Fed declined to comment. An American official stated that the joint intervention by the U.S. and Japan was aimed at addressing chaotic fluctuations in the yen and supporting 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 counterparts, but we do not comment on the operational details of our discussions. Concerns over U.S. debt buybacks Informed sources also indicated that Mnuchin's plan to increase buybacks of longer-term bondswhich may need to be financed by issuing more short-term Treasury billshas also raised concerns among ECB officials, as this, like the yen purchases, suggests that the U.S. government is willing to take unconventional measures to lower borrowing costs. Such interventions typically only provide temporary relief, said a second source, But they are clearly quite worried. So what will happen next? Will they pressure the Fed to start buying bonds in the market? Although the Fed is the sole monetary policy-making institution in the U.S. and is designed to be independent of the elected government, sources pointed out that Trump has indicated he is willing to take extreme measures to achieve his wishes. They are concerned that this could trigger market turmoil, the effects of which would extend far beyond the U.S. borders. In response, the aforementioned U.S. official reiterated previous statements, indicating that the increase in buybacks of long-dated bonds aims to provide greater liquidity to the long-term bond market, and that the Treasury is able to obtain high-quality bids for buybacks in these areas. This is not monetary policy, nor is it an attempt to set a ceiling on interest rates, the official stated. However, last Thursday, a Treasury official admitted in an interview that the Treasury is indeed focused on lowering long-term yields, as those yields have risen above what the department considers to be fair value. Political risks to currency swap facilities? Some informed sources also noted that another concern for the European side is that political interventions could eventually affect the dollar liquidity support mechanism that the Fed provides to major global central banks. These swap lines are seen as the cornerstone of global financial stability, ensuring that global commercial banks can continue to access dollars, especially during times of financial stress. The Fed renews this arrangement each year, provided that it effectively serves U.S. interests and market stability, as overseas banks may be forced to sell U.S. bonds if they are unable to obtain dollars during turbulent global market conditions. But rationality does not always prevail in this administration, said a third source. When they implement retaliatory trade policies against their closest allies, Trump could easily say, Hey, theyre taking advantage of us, and suddenly those swap lines could disappear overnight. Informed sources indicate that there are currently no signs suggesting that these support mechanisms are in danger, and they still anticipate these arrangements will remain unchanged. The swap lines are authorized by the Federal Open Market Committee and are operated entirely by the Fed, rather than by the administration. Decisions about the Fed's facilitation arrangements and swap facilities are made by the Fed, the aforementioned Treasury official stated, Anything the Treasury announces regarding yen operations or debt buybacks does not imply any other meanings. The official further added that Mnuchin looks forward to discussing financial stability issues with group of twenty central bank governors in Asheville, North Carolina, in the coming days, to further advance the governments agenda of isolating Iran and promoting the reduction of global imbalances. Informed sources noted that just over a month into his tenure, Fed Chair Powell made a trip to Europe specifically to establish good relations with local officials, leaving a generally positive impression. During his first appearance as the Fed's leader at the Jackson Hole meeting, he even took a routine photo with Bank of Canada Governor Stephen Poloz. Although this gesture was small, it is still noteworthy, as Trump is currently engaged in an escalating trade war with Canada.