Donald Trump’s assault on the independence of the US Federal Reserve has been backed by Liz Truss, the shortest-serving British prime minister in history, who was ousted after a meltdown in the financial markets.
The former Conservative leader, who during her 49 days in power in late 2022 railed against the “deep state” and the Bank of England for undermining her before she was ejected from office by her own party, said a “reckoning” was coming for the world’s most powerful central banks.
“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. US government borrowing costs have risen sharply in recent months amid concern over the impact Trump’s tariff policies could have and questions over Fed independence.
Olli Rehn, a member of the ECB’s governor council, warned on Thursday that Trump’s challenge to the Fed could come with significant costs for the global economy.
Fed independence had remained an important principle since the 1980s, said Rehn, who is also the governor of Finland’s central bank. “Now, however, this principle is wobbling badly. This could have substantial, global knock-on effects on both the financial markets and the real economy.”
Central banks have become a target for populist politicians on both sides of the political divide in recent years amid frustrations over lacklustre economic growth and stalling progress to raise living standards since the 2008 financial crisis.
In the UK, the Bank of England was granted independence to set interest rates in 1998 by Gordon Brown, then the Labour chancellor, to demonstrate a commitment to keeping inflation under control. Its remit is set by the chancellor, with a target to maintain price stability and to support the economic objectives of the government. Its governor is appointed by the monarch to a fixed term on the recommendation of the chancellor.
Since leaving office, Truss has repeatedly blamed the Bank for the bond market turmoil that contributed to her downfall. She revealed last year that she considered sacking its governor, Andrew Bailey, but said she did not have time and feared it would cause a financial market crisis.
Truss’s disastrous mini-budget, which included £45bn of unfunded tax cuts, took place against a febrile backdrop in the markets as government borrowing costs rose around the world, which her own economic advisers warned meant a cautious approach was warranted.
Over four days after the event, long-term UK government bond yields rose by more than the annual increase in 23 of the past 27 years, before the Bank stepped in with emergency support to prevent pension funds from going bust.
The pound collapsed to its lowest level since 1985 as global investor confidence in Truss’s government evaporated, and analysts spoke of a “moron premium” for UK assets.