BOE v The USA Federal Reserve

During this traumatic period with Trump and the trade wars there has been much turmoil particularly in stock markets, accordingly comparison has been made with the Liz Truss Budget when she was PM.

Liz Truss was going for growth and her decisions with her then Chancellor at the time, Kwasi Kwartend, caused some consternation. The decisions were aggressive, and it was thought might cause an issue with the value of Sterling, however the decisions were not fully funded although no doubt they would have been in the fullness of time.

The Bank of England under “Carney” now panicked, raising interest rates to 2.25% from 0.5%, a massive 450%. Later, the BOE admitted the crises this caused and subsequent run on Sterling, causing the BOE to have to support the purchase of Gilts, was mainly their, the BOE’s, fault.

Later these gilts were all sold at a profit of £1 Billion, a matter that is seldom revealed, not by the BOE, not by Carney, and certainly not by the current PM of UK Keir Starmer.

Of course Liz Truss was eventually forced to resign, so she was the real casualty, as was the Conservative party when the new leader, Rishi Sunak was chosen against the rules of the conservative party rules for leadership selection (members had no say) then led the party to its worst defeat at a General election since 1945.

So how is this similar to the current Trump Turmoil?  Well of course the scale is massively different with currently World Stock Markets diminishing, but there are similarities and one massive difference.

Both Trump and Truss sought to change the fortunes of their country’s economic performance.

They both wanted to change the policy course their countries were on, Trump by stopping huge imports from overseas killing the home-grown industries, particularly manufacturing and causing widespread unemployment particularly for the poor where immigration was also affecting employment.

Truss wanted to reverse austerity and high taxation and move to a more dynamic growth model, lower taxation, higher production, better pay. Of course, she should have taken more time and advice and costed these changes, her inexperience got the better of her and her chancellor.

The big difference came as with Trump, the USA Fed saw the issues, understood the potential problems and no doubt are still estimating potential damage,

BUT and here is the key, The Fed understood Trump was following his presidential right as an elected President of the USA to carry out his policies supported by the people of the USA. The Fed did not and have not interfered!

Carney though and the BOE, somehow felt he and they were more important than a democratically elected Prime Minister of the UK. He acted like no other BOE chief by upping interest rates to such a level, from 0.5% to 2.25% contrary to need and the new government policy,  it caused panic in the markets, causing the bank to spend £Billions on support for sterling, and eventually leading to a democratic PM having to resign.

Carney escaped without rebuke at the time, he is now PM of Canada, good luck to them, they are going to need it.

So, you can see, the FED in the USA supports their President, the BOE does not support the PM, neither does the BOE, unlike to ECB, reduce interest rates when appropriate, similar current inflation, BOE 4.5% ECB 2.5% ad the Euro has strengthened recently.

So, the Question that needs a fast answer now is “Is the BOE fit for purpose, most might say no!