Yellen warns Fed’s independence under threat

WASHINGTON: The US central bank’s shield from political interference is ‘under some threat’ from Congress, a prospect that could erode progress in the economy, Federal Reserve chief Janet Yellen warned.

Research shows that countries that allow the central bank independence in setting monetary policy “tend to enjoy stronger macroeconomic performance,” Yellen said in a discussion at the University of Michigan.

The US Congress ‘ very wisely’ passed a law that afforded that independence to the Fed in the 1970s, but it is threatened by proposed legislation that would either audit the Fed’s decisions or require it to follow a strict mathematical formula to set interest rates.

“I always worry about threats to our independence,” Yellen said.

While she did not mention US President Donald Trump, he was highly critical of the Fed during the election campaign last year.

“I do think independence of a central bank to make decisions about monetary policy, free of short-term political pressures, is very important and results in better decision making, focused on the long-term needs and health of the economy,” Yellen said.

This does not mean the Fed lacks accountability or transparency, she said, noting that she is required to testify before Congress twice a year, and holds regular news conferences in addition to publishing the minutes of the policy meetings. — AFP