Fed independence 'under threat', Yellen warns, Latest Business News - The New Paper

Fed independence 'under threat', Yellen warns

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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 has warned.

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

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," Dr Yellen said.

While she did not mention US President Donald Trump, he had been 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," Dr 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.

Dr Yellen said the economy currently is "pretty healthy", as it continues to gradually improve in the wake of the 2008 global financial crisis. But it will be key for the central bank to not allow inflation to accelerate too quickly. - AFP

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