#central-bank-independence

#central-bank-independence

I worry about complacency. Fiscal room for manoeuvre is thin across the developed world, and the toolkit that helped during the financial crisis-large‑scale QE, in particular-can't be mobilised in the same way again. Yields have risen sharply but mostly in an orderly fashion; we've not had many "cliff‑edge" moments outside Japan. That doesn't mean we're safe. If market participants decide they will only finance governments at much higher rates, the spiral can be vicious. We're vulnerable to that kind of shift in sentiment.

Donald Trump's attempt to sack the Federal Reserve governor, Lisa Cook, is the familiar authoritarian trick of bending institutions to serve the leader's immediate ends. The widespread condemnation is deserved. This is not some daring experiment in popular control of monetary policy. Yet what should follow censure is reflection. For the furore over Ms Cook has revealed a peculiar reflex: to defend the Fed's independence as though it were synonymous with democracy itself. But is independence of the Fed, or central banks generally, really that?

I think there is a reckoning coming for the central banks, not just in Britain but also in the United States, also the ECB [European Central Bank], she told Bloomberg's Odd Lots podcast. Truss, who repeatedly criticised economic orthodoxy during her brief spell in Downing Street, argued that unelected central banks were able to undermine elected politicians. It's also very difficult, as I found as prime minister, to combine fiscal and monetary policy if you don't hold one of the levers. So I think it's got to change, she said.

Recent reports suggested that Treasury Secretary Scott Bessent attempted to dissuade President Trump from firing Chair Jerome Powell. Concerns around central bank independence could continue to weigh on the currency, while the current political pressure could undermine the institution's credibility.