Washington (People's Daily) - Four previous chairs of the Federal Reserve wrote an article America Needs an Independent Fed published on the Wall Street Journal on Wednesday. They are Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen.
The Federal Reserve building is pictured in Washington, DC, US, August 22, 2018. (File photo: VCG)
They said "as former chairs of the board of governors of the Federal Reserve System, we are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons".
As a result, they believe those decisions were better for being the product of nonpartisan, nonpolitical assessments based on analysis of the longer-run economic interests of US citizens rather than being motivated by short-term political advantage.
The former leaders of the Fed emphasized that the Fed's powers are appropriately checked by Congress. They wrote, "Congress sets the Fed's powers and charges it with maximizing employment and promoting stable prices." And continuing with, "Because nonpartisan, independent monetary policy is so important, Congress wisely established the Federal Reserve as an independent agency with regional participation and safeguards against political manipulation."
They went on to stipulate how politically driven moves hurt the economy more than anything else.
"Examples abound of political leaders calling for the central bank to implement a monetary policy that provides a short-term boost to the economy around election time. But research has shown that monetary policy based on the political (rather than economic) needs of the moment leads to worse economic performance in the long run, including higher inflation and slower growth."
They concluded that the Federal Reserve should keep itself separate from political motivated interests, "It is critical to preserve the Federal Reserve's ability to make decisions based on the best interests of the nation, not the interests of a small group of politicians."
Their comments follow months of pressure from US President Donald Trump, who has accused the Fed and Chairman Jerome Powell of holding back economic growth by raising interest rates. The Fed lowered interest rates for the first time since the 2008 financial crisis last week. Two days before the policy decision, Trump wrote on Twitter advocating for a large reduction in borrowing costs, saying a "small" rate cut would not be enough. The move was largely viewed as an effort to preserve economic growth under the president's pressure and ongoing trade war with China.