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Ben Bernanke thinks we are idiots—or that we have the attention span of a tadpole. Or he mistakenly read a speech written in 2006 when Alan Greenspan was still the Maestro.
In a speech in Tokyo Tuesday, the Federal Reserve chairman warned that central banks must be independent from political interference in their handling of monetary policy. Politicians, he argued, prefer holding interest rates low as a means of stimulating the economy and boosting jobs.
This is dangerous “leaving behind inflationary pressures that worsen 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.”
This is like Al Capone arguing that the interference of the FBI gets in the way of business. Or BP arguing that oil company independence is critical to safe oil drilling.
Need we recall that the Fed’s independence was sacrosanct for years under Greenspan, the Delphic maestro of monetary policy. And Greenspan fed and overlooked the worst booms – the dot com bubble, the housing bubble – refusing to exercise either the regulatory or monetary measures that might have limited the damage. Politiicians could hardly have done worse.
Bernanke’s argument is truly outrageous as he was at Greenspan’s side and at the head of the Fed as the housing bubble expanded til it burst. The arsonist who helped light the financial conflagration now argues that only he is responsible enough to possess matches. Go figure.
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.
"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.
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.