Political encroachment on Fed may threaten its independence
By Pedro Nicolaci da Costa, ReutersJACKSON HOLE, Wyoming--Increasing political encroachment on the Federal Reserve, particularly from the Republican Party, could threaten the central bank's hard-won independence and undermine confidence in the nearly 100-year-old institution.
September 4, 2012, 12:09 am TWN
That was the pervasive sentiment among economists gathered at the Fed's annual monetary policy symposium in Jackson Hole, Wyoming. Against the dramatic backdrop of the Grand Teton mountain, many said a closely contested presidential race has turned the monetary authority into a political soccer.
“I do fear for it a bit if the election comes out that way, especially if some of the more radical voices, that happen to be Republican voices nowadays, get re-elected,” said Alan Blinder, Princeton economics professor and a former Fed vice chairman, adding that historically opposition to the U.S. central bank had come predominately from the left.
“There's a lot of hostility,” said Blinder, who was appointed to the Fed by former President Bill Clinton.
The primary topic of conversation at the rustic mountainside resort was whether or not Fed Chairman Ben Bernanke and his colleagues would deliver another round of monetary stimulus soon.
But, when probed on the issue on the sidelines of the meeting, many participants voiced concern about the heated political rhetoric aimed at the Fed, including a bill that would audit the conduct of monetary policy that is gaining increasing traction among Republicans.
Republican presidential nominee Mitt Romney has said the Fed should be audited and that he would not reappoint Bernanke, himself a Republican who was originally picked for the job by George W. Bush, to a third term when his current one expires in early 2014. Still, he has pledged to respect central bank independence.
The Fed is already subject to regular audits, but congressman Ron Paul's bill would remove an exemption for monetary policy deliberations.
For some observers, that pressure is already affecting the Fed's behavior, preventing it from pushing more aggressively for stronger economic growth following the sharp blowback received back in 2010, when policymakers announced their last large scale bond purchase program.
Some analysts outside the Fed's inner circle — the ones that weren't invited to Jackson Hole — argue top central bank officials brought some of the political heat on themselves. By backing bank bailouts that came with few strings attached and allowing some of the chief culprits of the financial crisis to continue doing business as usual, these critics say, the Fed was seen as too close to Wall Street, making it an easy political target.
Ironically, the complete political gridlock that characterizes U.S. fiscal policy has left the Fed in the difficult position of being “the only game in town.”