BofE boss ‘very concerned’ about Trump’s Fed attacks

Bank of England governor Andrew Bailey is ‘very concerned’ about threats to central bank independence, as his opposite number in the US continues to face pressure from President Donald Trump.

Trump has been pushing for more aggressive interest rate cuts from the Federal Reserve, having recently taken the unprecedented move to fire governor Lisa Cook after repeat threats to axe chairman Jerome Powell.

Bailey told MPs on Wednesday the attacks had created ‘a very serious situation’ and threats to central bank independence are ‘a very dangerous road to go down’. It echoed comments from chair of the European Central Bank Christine Lagarde, who said Trump’s Fed attacks are a ‘serious danger’ for the global economy.

Central bank independence refers to monetary policymaking and financial system management conducted free of direct government influence. In theory, it means central banks can set policy to serve the long-term economic health of the country, rather than making decisions for short-term political gains.

The Fed, the world’s most influential central bank, has been independent since 1951. BoE independence would not arrive until 1997 when it was introduced by Gordon Brown in his first days as Chancellor.

Bailey said on Wednesday: ‘This is a very serious situation. I am very concerned because the Federal Reserve is obviously the central bank for the world’s largest economy. ‘[For all central banks] monetary and financial stability… are our two objectives, which underpin…the foundations of policy.

‘One way of putting this is that, if we do those things, we enable [the government] to go off and take decisions… knowing that the foundations are sound. That’s important. ‘The job of an independent central bank is to provide those foundations, to take independent decisions within the remits we’re given by [MPs].

‘We are accountable to MPs through sessions like this, that’s how it works and that’s how it should work.’ Governor Bailey was speaking to the Treasury Committee for a planned discussion on the bank’s most recent decision to cut base rate by 25 basis points to 4 per cent.

He was asked by Labour MP for Glasgow East, John Grady: ‘Would your position be, ‘careful what you wish for – Because if you lose [bank] independence, you risk higher prices, higher mortgage rates and higher cost of borrowing for social housing and businesses’?.’ ‘Yes,’ replied Bailey.

The BoE is expected to keep base rate on hold at 4 per cent at its upcoming September meeting. Financial markets are currently split on whether the bank will make one more 25bps cut to 3.75 per cent before the end of the year.