Donald Trump has intensified attacks on the independence of the US Federal Reserve, pressing for interest rate cuts and asserting he was firing governor Lisa Cook. Liz Truss backed efforts to curtail central bank independence and warned of a reckoning for central banks globally, arguing unelected central banks can undermine elected officials and complicate coordination between fiscal and monetary policy. The UK faces rising long-term government borrowing costs near 1998 levels amid investor concern and possible autumn tax increases. Investors attribute higher borrowing costs to global US-linked market conditions and UK-specific fiscal worries. Leading investors and economists warn that political interference damages central bank credibility in controlling inflation.
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.
Truss, who lost her parliamentary seat in last year's general election, said the UK faced an economic doom loop of higher taxes, lower growth and higher debt under Labour. In recent weeks, long-term UK government borrowing costs have risen close to the highest levels since 1998. Investors have blamed a global rise in borrowing costs linked to US market conditions, but also UK-specific concerns as the chancellor, Rachel Reeves, is said to be considering raising taxes at the autumn budget.
Trump this week escalated his attack on the Fed by saying he was firing one of its governors, Lisa Cook. The president has applied sustained pressure to the central bank and its chair, Jerome Powell, with demands for a cut in interest rates. Leading investors and economists have said political interference damages the credibility of central banks to keep inflation under control.
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