Former US Fed leaders call for independent central bank
Four former leaders of the US Federal Reserve have called for the independence of the central bank, saying that the Fed and its chair must be permitted to act in the best interests of the economy, free of short-term political pressures, and, in particular, without the threat of removal or demotion of Fed leaders for political reasons.
In an opinion piece published on The Wall Street Journal on Tuesday, Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen wrote that an economy is strongest and functions best when the central bank acts independently and relies solely on sound economic principles and data.
"Examples abound of political leaders calling for the central bank to implement a monetary policy that provides a short-term boost to the economy around election time. But research has shown that monetary policy based on the political (rather than economic) needs of the moment leads to worse economic performance in the long run, including higher inflation and slower growth," wrote the former Fed leaders.
The co-signed article came after US President Donald Trump's criticism of Fed Chairman Jerome Powell last week, when he lashed out at the Fed chief for not signaling the start of "a lengthy and aggressive rate-cutting cycle." The US president on Monday urged the Fed to pay attention to his remarks when he falsely accused China of "currency manipulation" on Twitter.
Trump has repeatedly voiced his discontent of the Fed's monetary policy over the past few months, and even reportedly discussed an attempt to remove Powell from his position, raising questions about the central bank's independence. Powell, meanwhile, has repeatedly stressed the Fed's commitment to independence and said he fully intends to serve a four-year term.
"Even the perception that monetary-policy decisions are politically motivated, or influenced by threats that policy makers won't be able to serve out their terms of office, can undermine public confidence that the central bank is acting in the best interest of the economy. That can lead to unstable financial markets and worse economic outcomes," the former Fed leaders wrote.
They noted that when the current chair's four-year term ends, the president will have the opportunity to reappoint him or choose someone new, and that nomination will have to be ratified by the Senate. "We hope that when that decision is made, the choice will be based on the prospective nominee's competence and integrity, not on political allegiance or activism," they said.
"It is critical to preserve the Federal Reserve's ability to make decisions based on the best interests of the nation, not the interests of a small group of politicians," they said.