Thursday, August 21, 2014
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Plosser warns against politicizing the Federal Reserve

The Philly Fed president said in a speech that the central bank needs independence to make decisions, such as raising interest rates, that are often unpopular.

Plosser warns against politicizing the Federal Reserve

Listen to enough speeches by Federal Reserve regional presidents and you can be forgiven for wondering whether they speak the same language as we do.

But Wednesday, Federal Reserve Bank of Philadelphia president Charles I. Plosser gave a speech before the World Affairs Council of Philadelphia that minced few words.

To Plosser, recent efforts in Congress seeking power to “audit” the Federal Reserve are less about accountability than political pressure. It would be a move toward politicizing an institution that needs independence to make unpopular decisions, such as raising interest rates, he said.

Bills under consideration could mean that the General Accountability Office would be asked to investigate a decision to change interest rates whenever a member of Congress disagreed with that move, Plosser said.

Given the Federal Open Market Committee, which votes on interest-rate decisions, tends to meet eight times a year, I foresee such a request after every meeting.

For the most part, politicians like low interest rates. Celebrated as sage and savior now, Paul Volcker didn’t win any Washington popularity contests in the 1980s when he was hiking rates into double-digit territory to crush inflation.

With the interest rates effectively at zero now, how much flak do you think Bernanke & Co. will catch once the FOMC begins to add some whole numbers to the lefthand side of that decimal point?

In his speech, Plosser noted that “it strikes many people as odd that in a democratic society we leave monetary policy decisions in the hands of nonelected policymakers who can act with independence.”

In fact, Congress set up the current system to curb the temptation to interfere. Businesspeople and politicians are rightly excoriated for their tendency to manage only for the next quarter, or the next election.

The Fed is one of our few institutions that acts in the nation’s long-run interest and freedom is one reason why.

Mike Armstrong Inquirer Columnist
About this blog
Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at marmstrong@phillynews.com.

Mike Armstrong Inquirer Columnist
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