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Fed's Fischer: proposals to limit Fed independence "dangerous"
[WASHINGTON] Congressional influence on US monetary policy could wreck the Federal Reserve's ability to control inflation and be a "dangerous" departure from the broadly accepted norm of central bank independence, Fed Vice Chairman Stanley Fischer said on Wednesday.
Inflation has been anchored at low levels for more than two decades "due in great part, I suspect, to the continued credibility of the Fed's independence from political interference," Mr Fischer told a meeting of the National Economists Club.
Making the Fed stick to a policy rule or be answerable to Congress for every policy decision would be "dangerous," Mr Fischer said, and go against a broad consensus that monetary policy is more effective when it is set free of day-to-day political influence.
Some congressional Republicans have pressed for the Fed to adopt a firm monetary policy rule in setting interest rates, and justify to Congress in a policy "audit" any cases where rate decisions deviate from that rule. The proposals are not expected to become law, but have nonetheless prompted officials to make a strong public case against them.
Mr Fischer, a veteran central bank and global finance official, argued in a 22-page lecture that central bank independence now had a long track record of success, and should not be weakened. The Fed, he said, would not be able to effectively respond to a crisis if elected officials in Congress or the administration were dictating policy.
Proposals to audit the Fed, Mr Fischer said, "would thus represent a departure from the modern governance structure that has come to characterise the Fed and leading central banks around the world ... If a congressional hearing were held every time a monetary policy decision deviated from a simple equation, as has been proposed, the Fed would be subjected to the very sort of political pressure from which experience suggests central banks should be independent." Mr Fischer in his prepared remarks did not address US monetary policy or economic conditions.