The independence of the Fed threatened - January 31, 2010
Ben Bernanke does not have time to savor his victory. Extended for four years by seventy senators cons thirty to head the central bank of the United States, the former Princeton economist sees its legitimacy weakened, while the independence of the institution he heads is seriously threatened .
Not a Fed chief, chosen by the White House, has been confirmed with a margin too low. What is worrying is that opposition to Bernanke comes from both Democrats and Republicans. He was accused of being partly responsible for the crisis not to have been able to control the excessive risks taken by banks. He is accused of having flooded with public money from financial institutions that deserve to be further penalized by their mistakes.It is with others, the scapegoat for those who cry in Washington and stoke the anger of public opinion to the arrogance of banks that seem to again win a lot of money but do not pay enough to consolidate the recovery. Still others are alarmed inflation risk posed by the policy of zero interest rates by the Fed last year when it flooded the financial system liquidity to overcome bottlenecks in credit markets.
These complaints are a reflection of the trauma caused by emergency measures, costly and risky, taken from September 2008 to prevent recession turning into depression. Ben Bernanke in the storm remained remarkably calm. He calmly defended his actions, saying they were often the least bad options that presented themselves to him and his colleagues at the Fed. The moderate Republican, former economic adviser to George W.Bush has also earned the trust and respect for Barack Obama. Specialist in the history of the Great Depression of the 1930s, Bernanke did not actually rival in the battle for a second term. Nobody volunteered for this important position and ungrateful.
The problem of extending his set, Ben Bernanke must now do battle on two fronts. The first one is defending the prerogatives of the Fed. In the debate on banking reform, the Senate is considering withdrawing the U.S. central bank's responsibility for banking supervision. For Bernanke and the White House, the reform-there would be catastrophic. Barack Obama wants instead empower the Fed to regulate the banking risks.Moreover, the House of Representatives has already approved a project that the Fed would submit to regular audits of its market operations in the most confidential part of its mission to regulate the supply of credit. In the name of transparency, it risks depriving the Fed's independence. Under constant pressure from Congress, the Monetary Committee of the Fed might feel compelled to spend the prevention of inflation in the background, in order to placate the elected always eager above all that low interest rates stimulate growth and employment.
The second battlefront Bernanke is even more delicate. It is to decide when and by what means the Fed must raise rates now null and give exceptional measures to support credit markets in place for over a year.Drive up the cost of money is never a popular decision.
Especially when unemployment is still high and that America began a legislative campaign. Bernanke does not act too quickly and not weaken the recovery. But it must also act in time to avoid a surge in inflation expectations. The dollar's credibility is at stake stakes battles Bernanke has never been greater.
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