Bank of England's Bailey warns Trump's Fed criticism threatens central bank independence

Trump's Actions Raise International Concerns

Amid the global financial community's focus on central bank independence, Bank of England Governor Andrew Bailey made a rare public statement, bluntly calling U.S. President Trump's ongoing pressure on the Federal Reserve "extremely dangerous." Bailey emphasized that the independence of the Federal Reserve, as the world's most influential central bank, if compromised, would not only affect the U.S. but could also have a profound impact on the international financial order.

It is reported that Trump recently announced the dismissal of Federal Reserve Board member Lisa Cook, citing alleged loan fraud, but this move immediately sparked legal action. The market is generally concerned that this may just be the beginning of Trump's reshaping of the Federal Reserve Board.

Rare Statement from the Bank of England

For a long time, Bailey has maintained a restrained approach to Trump administration's economic policies, avoiding direct criticism. However, in his recent speech to the House of Commons Treasury Committee, he expressed strong concerns. He noted that the independent reputation built by the Federal Reserve over the past decades is a crucial foundation for ensuring policy credibility and market stability. If political forces intervene in interest rate decisions, the market's trust in U.S. monetary policy will quickly erode.

Bailey added, "Central bank independence is not just a procedural matter, but a key to maintaining market expectations and stable financial conditions. Once damaged, this trust will be hard to restore."

Global Central Banks Face Similar Challenges

In fact, the issue of Federal Reserve independence has long been a focus of global financial discussions. As Trump continues to demand more aggressive interest rate cuts, international investors are increasingly worried that U.S. monetary policy will be driven by political goals rather than economic data. European Central Bank officials have previously warned that if the Federal Reserve's independence is eroded, it could trigger long-term interest rate hikes, increasing global financing costs.

Bailey's statement implies that the Bank of England, along with other major central banks, is openly expressing concerns about the threat to the Federal Reserve's independence. This also highlights the common challenge facing global central banks in maintaining their authority and preventing political interference.

Market Reaction and Potential Consequences

On the same day of Bailey’s statement, the U.S. dollar index dipped, and the price of safe-haven asset gold rose slightly, indicating that the market has responded to potential uncertainties. Analysts pointed out that if the legal proceedings ultimately support Trump's actions, the institutional foundation of the Federal Reserve will be weakened, and market risk premiums could rise rapidly.

Some scholars warn that if Federal Reserve governors are frequently replaced, monetary policy could lose continuity, not only affecting U.S. economic growth and inflation expectations but also impacting global bond and foreign exchange markets.

UK's Position and International Cooperation

Bailey also emphasized that the Bank of England will continue to maintain policy independence, focusing on domestic inflation and economic growth goals. He called on major central banks to enhance communication and coordination in the face of increasing global financial instability to prevent further escalation of spillover risks.

A former International Monetary Fund (IMF) official commented that Bailey's public warning is "rare but necessary," conveying support for the Federal Reserve's independence and reminding governments worldwide that political interference with central banks could result in more severe consequences than short-term interest rate adjustments.

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