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Fed boss Ben Bernanke wary of political interference

Category: Business

Published: 26th May 2010 07:13:24

Ben Bernanke, the chairman of the US Federal Reserve, has said it and other central banks must be able to make key decisions free from political meddling.

He stressed the importance of the Fed and central banks in other nations keeping their independence over setting interest rates.

Restricting banks' ability to execute monetary policy would lead to economic instability and "boom-bust cycles".

It comes as governments around the world discuss ways to regulate banks.

Politicians generally prefer holding interest rates low, as a means of stimulating the economy and boosting jobs.

'Higher inflation'

"Such gains may be popular at first, and thus helpful in an election campaign, but they are not sustainable and soon evaporate, leaving behind inflationary pressures that worsen the economy's long-term prospects," Mr Bernanke said.

He made his comments in a speech at a conference in Tokyo on the future of central banking in a globalised economy.

"Thus political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation," he said.

His comments come as the US Congress moves towards passing a package or measures aimed at revamping US financial rules, and subjecting the Fed to more oversight.

'Risky transition'

Mr Bernanke dismissed suggestions that the Fed might consider targeting a higher level of inflation.

"It will be a very risky transition if we in any way reduced our commitment to 2% or an approximate 2% inflation target," he said.

"We're not sure how expectations would react.

He said that despite increases in inflation a few years ago and declines in inflation now, inflation expectations in the US had been "remarkably stable".

Mr Bernanke was responding to a proposal in an IMF paper that the Fed might consider raising its inflation target to 4% to make monetary policy more effective in future deflationary crises.

Source:
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BBC News, 2010. Fed boss Ben Bernanke wary of political interference [Online] (Updated 26th May 2010)
Available at: http://www.ukwirednews.com/news/62485/Fed-boss-Ben-Bernanke-wary-of-political-interference [Accessed 23rd Apr 2014]

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