Election stirs debate about Fed's handling of political pressure

Thu Apr 7, 2016 11:36am EDT
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By Jonathan Spicer

WASHINGTON (Reuters) - Donald Trump says the Federal Reserve has stoked asset bubbles and backs a congressional review of its decisions. Bernie Sanders also wants to "audit" the Fed to make it less beholden to Wall Street. Ted Cruz calls for a return to a gold standard abandoned in 1933.

Such voices from the 2016 presidential campaign have emboldened lawmakers who seek to limit the Fed's powers and are prompting some current and former Fed officials to call for steps to placate the U.S. central bank's harshest critics.

More than a dozen insiders and Fed watchers said in interviews they were concerned that the next president could be more sympathetic to critics' views that the Fed has grown too powerful and impenetrable.

Confronted with a possible Republican push to give Congress more say in shaping Fed policy, these insiders say concessions may be necessary to protect the Fed's independence.

"There's a deep-seated institutional fear that if you crack the door open, it will be kicked in. But often that's just not the case," said David Stockton, the Fed's former research director and now a fellow at the Peterson Institute for International Economics.

The concerns among the group, which includes current and former regional presidents, are growing despite the expectation that Democratic front-runner Hillary Clinton, who polls suggest should win in November, would help the Fed preserve the status-quo.

The worries reflect the balancing act that central banks face as the world economy still sputters despite aggressive monetary easing. Central bankers are getting blamed both for overstepping their bounds and for not doing enough to bolster growth. Even as the U.S. economy outperforms, the Fed is especially vulnerable, because it is ahead of its peers in unwinding the crisis-era stimulus.

Chair Janet Yellen and her colleagues have warned in public speeches and private meetings with lawmakers that initiatives to make the Fed more accountable and transparent could backfire. They are defending the decades-old, but now challenged, consensus that the Fed can best safeguard long-term economic stability when shielded from direct political interference.   Continued...

Snow rests on the eagle statue atop the U.S. Federal Reserve in Washington January 26, 2016. REUTERS/Jonathan Ernst