Andrew Bailey, the Governor of the Bank of England, recently expressed concerns regarding the potential threats to the independence of the US Federal Reserve, describing them as “very serious.” This statement came during his testimony to the Treasury Select Committee amid ongoing criticism from President Donald Trump towards the Fed and its leadership, particularly targeting Chair Jerome Powell for not implementing deeper interest rate cuts.
Bailey noted that the Federal Reserve, as the central bank of the world’s largest economy, has cultivated significant credibility through its independent decision-making. His comments align with those made by Christine Lagarde, the President of the European Central Bank (ECB), who cautioned that a loss of independence could adversely impact economic stability globally.
President Trump, following his return to office, has advocated for substantial cuts in interest rates, which are currently set between 4.25% and 4.5%. In contrast, both the ECB and the Bank of England have reduced borrowing costs multiple times in recent months. Trump has publicly criticized Powell’s performance, labeling him as “lousy” and suggesting he is “too late” in responding to economic conditions.
Bailey emphasized that central banks are essential for ensuring economic stability, allowing governments to make informed policy decisions. He raised concerns that political pressures might lead to undesirable compromises on foundational economic principles.
On domestic interest rates, Bailey indicated increased uncertainty about the pace of rate cuts, with the Bank of England expected to make its next decision on September 18. He acknowledged recent rate cuts, noting that the Bank had reduced rates to 4% from 4.25%. As inflation rises, Bailey remarked that future rate decisions would be closely monitored.
He also highlighted that recent increases in long-term government bond rates could affect borrowing costs for the government, though he advised caution regarding how much emphasis should be placed on these figures, asserting that the UK’s standing is relatively stable compared to other economies.
Source: https://www.bbc.com/news/articles/cpw18rwz1r1o?at_medium=RSS&at_campaign=rss