The Bank of England’s governor has warned that threats to the independence of central banks was a “dangerous road to go down” amid Donald Trump’s attempt to sack the governor of the US Federal Reserve.
Andrew Bailey voiced his concerns to a group of MPs on the Treasury Committee on Wednesday.
He said: “This is a very serious situation and I am very concerned because the Federal Reserve is the central bank for the world’s strongest economy … it has built up a very strong reputation for its independence and for its decision-making.”
He was responding to the mounting independence issues facing the US’s central bank, amid the US president’s move to sack governor Lisa Cook over allegations that she committed mortgage fraud when purchasing a home in 2021.
Mr Trump has also repeatedly demanded that the Fed, led by chairman Jerome Powell, reduce its key interest rate, which has been kept unchanged for the last five meetings.
The Fed, like the Bank of England, operates independently of the government – meaning it sets interest rate policy without political interference.
Mr Bailey told MPs that “monetary stability and financial stability underpin the foundations of policy” that enables governments to make appropriate political decisions.
“I think what we’re now seeing is people saying we should be able to trade off the foundations for those other decisions, and I’m afraid I just think that is a very dangerous road to go down,” he said.
He told the committee: “The job of an independent central bank is to provide those foundations, to take independent decisions to do it, within the remit that we’re given … that’s how it works, that’s how it should work.
“And so the threats to that I take very seriously.”
Asked by Labour MP John Grady whether losing the independence of central banks could result in “higher prices, higher mortgages and higher cost of borrowing for social housing and businesses”, Mr Bailey said that was “correct”.
