Rachel ClunBBC News business reporter
House of Commons
The Bank of England governor has warned that threats to the US Federal Reserve’s independence are “very serious” and a “very dangerous road to go down” as President Donald Trump continues to target America’s central bank.
Andrew Bailey told the Treasury Select Committee: “This is a very serious situation, I am very concerned.”
Trump has repeatedly attacked Fed chair Jerome Powell for not cutting interest rates and attempted to fire one of its governors, Lisa Cook who is now suing the US president.
Mr Bailey is latest central banker to raise the alarm after European Central Bank (ECB) president Christine Lagarde said a loss of independence was a “very serious danger” to the global economy.
Ms Lagarde warned that if the Fed was forced to respond to presidential orders it would have a “very worrying” effect on economic stability around the world.
Mr Bailey echoed her concerns, telling MPs: “The Federal Reserve is the central bank for the world’s largest economy. It is a leading central bank. It has built up a very strong reputation for independence and its decision-making so this is very concerning.”
Trump has made it clear that since returning to the White House in January that he would like to see large cuts in official interest rates which have remained at between 4.25% to 4.5% since last December.
In contrast, the ECB and the Bank of England have cut borrowing costs a number of times since last year.
Trump has repeatedly attacked Mr Powell for not doing the same – calling him “too late” and claiming he is “lousy” at his job.
Mr Bailey said it was the job of central banks to ensure that economies were stable, which allowed governments to take policy decisions “knowing the foundations are sound”.
He said what was happening now in the US was politicians deciding they “should be able to trade off the foundations for those other decisions”.
“I just think that is a very dangerous road to go down,” he said.
On domestic interest rates, Mr Bailey told the committee said there was now less certainty about how quickly the Bank would continue to make cuts. The next decision is due on 18 September.
“There is now considerably more doubt about exactly when and how quickly we can make those further steps,” he said but added the path remained “downwards gradually over time”.
Last month, the Bank of England cut UK interest rates from 4.25% to 4%, but in an unprecedented move the Bank’s policymakers needed two votes to reach a decision.
That suggested future decisions on interest rate cuts would be finely balanced.
Mr Bailey told the BBC at the time the path for interest rates continued to be “downwards” but the path was ” a bit more uncertain frankly” as inflation – the rate at which the cost of goods and services increases – was continuing to rise.
The Bank began cutting interest rates from its recent high of 5.25% in August last year.
Mr Bailey told MPs on Wednesday the UK was not seeing inflationary pressure from higher tariffs introduced by Trump “as of yet”, noting that their impact could be “ambiguous”.
“If the world economy started to fragment and we got supply chain pressures as we did after Covid, of course, that would be inflationary,” he said.
He added that if the UK receives more Chinese exports as a result of high tariffs on Chinese exports to the US, that could in fact push prices down.
“We have to keep watching this closely,” he said.
Meanwhile, Mr Bailey questioned recent coverage of the interest rate on long-term government bonds.
The rate on 30-year bonds jumped to the highest level since 1998 on Tuesday, making it more expensive for the government to borrow money as speculation mounts over what Chancellor Rachel Reeves will announce in the Budget on 26 November.
The Bank governor said it is “important not to focus too much” on longer-term borrowing costs, noting that compared to other economies the UK is “broadly in the middle of the pack”.
“It’s a number that gets quoted a lot. It is quite a high number but it is not what is being used for funding at all at the moment actually,” he said.