Market
Conference
Bernanke Continues Fight Against More Fed Scrutiny
作者：25 发布时间：2010-05-27 文字大小：【大】【中】【小】
With Congress getting close to finalizing an overhaul of the nation's financial-regulatory system, Federal Reserve Chairman Ben Bernanke weighed in against provisions in the proposed legislation that would subject the central bank to more political scrutiny.
In a speech at the Bank of Japan on Wednesday, the Fed chief argued before an international audience that central banks independent from politics were better at managing the economy. He also detailed the steps the Fed had taken to become more transparent and accountable to the public, two conditions he said were needed in return for greater independence.
The Fed is waging a battle against a proposal approved by the House in December that would subject the U.S. central bank's decisions to audits by the Government Accountability Office, an investigative arm of Congress.
Mr. Bernanke is strongly opposed to the measure, which is part of the government's broader efforts to overhaul financial regulation.
A central bank subject to political influence could be pressed to keep interest rates low in order to boost the economy and employment, Mr. Bernanke said. While that could be popular at first—and helpful in an election campaign—it will lead to higher inflation in the future, hurting the economy's long-term prospects.
"Thus, political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation," the Fed chief said.
The regulatory overhaul bill approved by the Senate last week has a watered-down version of the House audit bill, which the Fed broadly supports. However, it includes a provision opposed by the Fed that would give the U.S. president the power to appoint and the Senate to confirm the head of the New York Fed, a move that would make it easier to exert pressure on the central bank by giving politicians more say in its leadership.
The House and Senate bills must now be reconciled by Congress.
History shows that central banks in the U.S., the U.K., Europe and Japan, once they have been shielded from political pressure, have a better track record at managing the economy, Mr. Bernanke said.
Because changes in interest rates take time to have an effect on the economy, a long-term view is needed at the Fed as it aims to achieve full employment and stable prices, he argued. That wouldn't be possible if short-term political interests must be satisfied.
Mr. Bernanke sought to lay out the steps the Fed has taken to become more transparent and accountable, including publishing the minutes of its policy-setting meetings and giving regular updates on the loans and securities it holds. The Fed gives weekly updates on its portfolio—while listed companies report quarterly.
The Fed is also now providing weekly updates on a U.S. dollar loan program with other central banks that was revived this month to help alleviate financial-market strains resulting from Europe's debt crisis.
Some U.S. lawmakers say the facility amounts to bailing out foreigners, but the Fed actually made money when it was used during the financial crisis in 2008 and 2009.
In a brief question-and-answer period after the speech, Mr. Bernanke was asked about that loan program, and whether he thought it should be made permanent. "We don't necessarily want to be providing a permanent service for financial markets," he answered. "There's a good case that we should put pressure, or at least try to influence, banks to better manage these currency mismatches," he added, noting that some banks have been relying on dollar funds but have had trouble raising them during the crisis.
He took two other questions—one about whether the Fed should try to give itself more flexibility by raising its inflation target from about 2% to 4%; another about the Fed's role in bailing out large financial institutions during the financial crisis.
He repeated previous statements that he was against a higher inflation target. As for the rescues, he said: "We hope never again to have to be involved in those kinds of activities."
—Kenneth McCallum contributed to this article.
Write to Luca di Leo at luca.dileo@dowjones.com
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