Fed Officials Unhappy with Proposed Political Intrusion

The Federal Reserve could be hamstrung in its response to any future crisis if Congress approves legislation deepening its oversight of the central bank, Fed governor Jerome Powell said on Monday.  In a strong defense of the central bank’s continued independence, Powell told a Catholic University law school audience that various proposals being debated in Congress carried more risk for the economy than proponents realize.

Calling the ideas “misguided” and “troubling,” Powell said they would “subject monetary policy to undue political pressure and place new limits on the Fed’s ability to respond to future crises.” Involvement of the Government Accountability Office in particular “would likely inhibit the debate and flow of information…which would lead to poorer decisions,” and make it difficult for markets to interpret or anticipate Fed actions, he said.

The central bank’s ability to act forcefully helped the country bounce back from the worst economic crisis in a century, Powell said, while some of the issues cited by Fed critics – such as high inflation and financial instability – have failed to materialize.  The Fed’s actions were effective, necessary, appropriate, and very much in keeping with the traditional role of the Fed and other central banks,” said Powell, an investment banker with strong credentials in Republican financial circles.

Reuters

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