Fed’s Bullard says must shield Federal Reserve’s independence

June 30, 2009 by · 1 Comment
Filed under: Opinion 

This pains me to say but at the moment, Bullard is correct on this point.  With the Fed pursuing their policy of quantitative easing (print money), there is a real concern with foreign investors that hold significant U.S. bond holdings that an erosion of the Fed’s independence could be a sign that a more populist approach to this stage of the economic recession.  If the investors think the amount of money printing will increase to pay for more stimulus and bailouts then they will demand much higher yields and will increase the cost of imported goods which in turn will import inflation into the U.S.  Long term I do think the independence on the Federal Reserve will be eroded because they are not maintaining the normal policy central bankers use of “price stability”.

News (Reuters):

St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.

“If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment,” he said after giving a talk about monetary policy to a Global Interdependence Center event.

The atmosphere between the Fed and the U.S. Congress has become very tense in the wake of last year’s crisis. Lawmakers are angry over the taxpayer-backed rescues of investment bank Bear Stearns and insurer American International Group, which led to a public outcry that could hurt them in the polls.

Fed Chairman Ben Bernanke also endured a hostile congressional grilling last week over the Fed’s role in Bank of America’s purchase of Merrill Lynch, and lawmakers have demanded Fed emails and questioned its accountability.

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