Extra Fed transparency might keep Congress at bay
By James Pethokoukis
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
WASHINGTON — Federal Reserve Chairman Ben Bernanke must know the unprecedented quarterly media briefings he is starting won’t hurt the central bank’s effectiveness. After all, Jean-Claude Trichet, president of the European Central Bank, gives one after each of his group’s monthly meetings. A bit more openness by the U.S. central bank might even help dissuade Congress from trying to exert more influence over monetary policy.
Whatever Bernanke’s ability to read economic tea leaves, he certainly has a grasp on political ones. The bank’s historic interventions into the U.S. economy have put its independence at risk as never before. A recent Bloomberg poll found that only 37 percent of Americans favored leaving the Fed alone compared to 39 percent who think it should be more accountable to Congress — and 16 percent who want the central bank abolished.
Perhaps reflecting public unease — while also seeking to boost its own power — Congress has been trying to chip away at Fed independence. Democrats have suggested removing regional Fed bank presidents from the policymaking Federal Open Market Committee, considering them too hawkish on inflation. And some Republicans want to give Congress vast new discretion to audit Fed activities.
Other members of the GOP want to alter the central bank’s dual mandate to maximize employment and restrain prices and have it focus exclusively on inflation. And just this week the U.S. Supreme Court ruled that the Fed must disclose details about its 2008 emergency lending program.
The court loss may have been a blessing in disguise. Combining great power and secrecy fosters the sort of public distrust that can inspire further meddling. As it is, Bernanke had already moved to open up the Fed a little by having it issue forecasts and publish meeting minutes more frequently.
Regular Q&A sessions with Fed beat reporters were a logical next step. A recent internal study at the central bank found that while more sunlight doesn’t necessarily help central banks in advanced economies, it doesn’t hurt them, either.
The Fed’s next big task will be to withdraw monetary stimulus despite a U.S. economy where unemployment is likely to be high and growth sluggish. Bernanke will need all the public forums he can to explain just how that will work.