U.S. Treasury Secretary Timothy F. Geithner said the Obama administration would oppose any effort to strip the Federal Reserve of its mandate to pursue full employment and warned Republicans against politicizing the central bank.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt.” “You want to be very careful not to take steps that hurt our credibility.”
The Republican congressional leadership, including John Boehner, nominated as the next House speaker, has criticized the Fed’s plan to buy $600 billion in assets, saying it would fuel inflation and asset bubbles. Senator Bob Corker, a Tennessee Republican who serves on the Banking Committee, said he favors confining the Fed’s mandate to promoting price stability.
Geithner, 49, declined to say what compromise the Obama administration would be willing to consider on extending Bush- era tax cuts, while ruling out making permanent the reductions for the wealthiest Americans.
“It is not responsible, and I could not recommend to the president in good conscience, that we go out and borrow $700 billion to make those high-end tax cuts permanent,” Geithner said.
He said he doesn’t think the tax cuts for the middle class will be allowed to expire in December, or that all of the tax cuts, including those for the wealthy, will be extended permanently.
On General Motors Co., Geithner said the government would get back “a very substantial part” of its investment and all the money the Obama administration spent on bailing out the automaker. Taxpayers put about $13.4 billion into GM under former President George W. Bush and $36.1 billion under Obama.
GM, which went bankrupt last year after almost a century on the New York Stock Exchange, raised more than $20 billion in an initial public offering Nov. 18.
Asked about Europe, Geithner said a financial rescue of Ireland could mark an end to the continent’s sovereign debt crisis. Officials from the European Union, International Monetary Fund and European Central Bank spent a second day in Dublin yesterday discussing a possible bailout of Irish banks.
“I believe they will achieve that because this government, Ireland has demonstrated that they are willing to do some very, very difficult, very, very hard things to dig their way out of this mess,” Geithner said. “And leaders of Europe have made some very tough political choices.”
He said China is allowing its currency to strengthen, and that “we want to make sure they sustain that.”
The Fed’s monetary easing, which Chinese officials have said weakened the dollar, hasn’t hurt U.S. efforts to convince China to let the yuan rise, Geithner said. The yuan has gained about 2.6 percent against the dollar since Sept. 1.
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt yesterday and in a meeting with U.S. senators Nov. 17.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Letter to Bernanke
Also this week, 23 people, including former Republican government officials and economists, urged Bernanke to halt the stimulus. Among those who signed the letter: Douglas Holtz- Eakin, a former Congressional Budget Office director; Weekly Standard Editor William Kristol, and Stanford University Professor John Taylor, creator of a monetary-policy formula on interest rates used by the Fed.
The Republican attacks on the Fed have been among the harshest since the central bank rushed to rescue the financial system with support for Bear Stearns Cos. and American International Group Inc. during the financial crisis.
“It is very important that we respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure” it promotes “sustainable economic growth,” said Geithner, who was president of the Federal Reserve Bank of New York before taking over as Treasury secretary last year.
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