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Janet Yellen has warned the Federal Reserve’s independence from political interference is under threat because of two bills circulating within Congress, as the Fed chair argued countries with central banks that are free of political interference perform better.
Ms Yellen said at an event at the University of Michigan’s Ford School of Public Policy that the US economy’s performance was better if there was a non-partisan group at the helm of the central bank that is shielded from short-term political pressures.
“Our independence is under some threat,” she said during a question and answer session. Ms Yellen cited the so-called Audit the Fed bill that has been discussed in Congress for some years, as well as a second bill that would require the central bank to follow a simple rule in setting rates and subject the Fed to an audit if it deviated from the guideline.
Our independence is under some threat. There is a bill called Audit the Fed that has been put forth in Congress for a number of years that would end our independence in making monetary policy decisions. And another bill that’s passed the House of Representatives and goes even further in interfering with monetary policy independence would require us to follow a simple mathematical rule in setting interest rates and if we deviated from it would call in the [General Accounting Office] to conduct audits.
I always worry about threats to independence and I think our macroperformance is better and the US is well served by having a non-partisan group shielded from short term political pressures [in] making these important decisions.
Donald Trump spoke in favour of audits of US monetary policy during the campaign but the administration’s position on recent legislative moves is less clear. Republicans have for a number of years proposed various measures aiming to open up the Fed to greater scrutiny as they argue it needs to be more transparent.
Ms Yellen has insisted that while policymakers consider various economic formulas when they consider policy it is important not to subject the central bank to too rigid a framework.