The independence of the US Federal Reserve is under serious threat, warns Bank of England Governor Andrew Bailey. Speaking to Members of Parliament, Bailey referred to these hazards as “really very serious.” He cautioned them that this course of action only takes us down a “very dangerous road.” Donald Trump has been unusually outspoken in his criticism of the central bank and its leadership, and continues to weigh in on its policies. Today, that opprobrium is reaching new heights.
This isn’t the first time President Trump has been upset with the Federal Reserve’s actions, especially about interest rate hikes. Ever since December, these rates have been stuck around 4.25% to 4.5%, a state of affairs that Trump has called intolerable. He has taken the opportunity to personally attack Fed Chair Jerome Powell, calling him a “too late, too soon—and too lousy—at-phased-in-his-job.” This sustained pressure is just one example of increasing alarm at the political pressure encroaching on monetary policy.
While Bailey has been warning, now European Central Bank (ECB) President Christine Lagarde is sounding the alarm as well. She worries about the Fed losing independence, so called. Lagarde described this loss as a “very serious peril” to the global economy. That, she said, risked creating “very toxic” spillover impacts on global economic stability.
These rising tensions between the White House and the Federal Reserve have more recently been inflamed by Trump’s unprecedentedly brazen efforts to meddle in its governance. According to reports, he attempted to fire Lisa Cook, one of the Fed’s governors. Now, she finds herself suing Trump for doing exactly that. These recent developments have illustrated the fragile state of central bank independence in today’s political environment.
Bailey expressed his concern during discussions about central bank independence, stating, “This is a very serious situation, I am very concerned.” Bailey and Lagarde’s remarks indicate a wider worry among the financial establishment. Political interference One of their chief concerns is the way that political interference could undermine central banking.
Yet as the debate over central bank independence deepens, the long-term impact on economic policy and international markets is unclear. Analysts warn that undermining the autonomy of institutions like the Federal Reserve could lead to instability not only in the United States but across international financial systems.