federal reserve

House provision on Fed rejected

By Patrice Hill, The Washington Times

Congressional negotiators on Wednesday jettisoned a House amendment that threatened to interfere with the Federal Reserve’s anti-inflation efforts while widening the public window for viewing into the Fed’s secretive lending and securities market activities.

The rejection of the House provision, authored by Rep. Ron Paul, Texas Republican and former presidential candidate, represented a major victory for Fed Chairman Ben S. Bernanke, who often clashes with Mr. Paul over inflation-fighting policies and warned against jeopardizing the central bank’s independence.

The question of the Fed’s independence is a touchy one from Wall Street to Beijing. China and other major investors in U.S. securities have increasingly voiced worries about future inflation in the U.S. driven by spiraling budget deficits.

Many investors fear the political fight in Congress over bank bailouts has weakened the Fed and invited congressional interference in critical Fed functions, including setting the level of short-term interest rates to deter inflation, and printing money to keep the global economy running.

“I thought we all agreed we do not want to interfere with monetary policy,” said House Financial Services Chairman Barney Frank, in presenting a compromise proposal to exempt the Fed’s monetary-policy deliberations from audits by the Government Accountability Office sought by Mr. Paul.

The compromise instead requires the Fed to post extensive details about its 2008 rescues of American International Group, Bear Stearns and other big financial institutions – which provoked a firestorm in Congress last year – while authorizing the GAO to audit future emergency Fed cash infusions for financial institutions.

The Fed would also have to regularly disclose information about its daily transactions with Wall Street banks through its discount lending window and securities market operations in New York, with a two-year lag.

But Mr. Frank, Massachusetts Democrat, said it was particularly important to insulate the Fed’s deliberations on interest-rate policy and interactions with foreign central banks from immediate congressional review and interference so the Fed can continue to act quickly to avert international financial calamities like the European debt crisis from spreading to U.S. markets.

To read more, visit: http://www.washingtontimes.com/news/2010/jun/16/house-provision-on-fed-rejected/

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