New York Sun editors are none too impressed with the Federal Reserve's resistance to closer oversight from Congress.
Many Fed officials cite the central bank's political independence as an important factor in their ability to fight the 2008 financial crisis.
But "the New York Fed was just found by a federal court to have broken the law in the course managing this crisis," a Sun editorial notes
. The court found that the New York Fed's establish of an 80 percent equity ownership and voting control in AIG “constituted an illegal exaction under the Fifth Amendment.”
The New York Fed should be concerned about its own governance rather than worrying about congressional efforts to rein in the central bank, Sun editors say.
"The Congress of the United States is a lens of angels compared to the Fed, whose chairman [Janet Yellen] has been on the Hill declaring she would oppose any rule—even, for goodness sakes, a voluntary one that the Fed itself would establish—for monetary policy."
Meanwhile, the Fed's economic forecasts have proven overly optimistic in four of the last five years. The mistaken predictions result from the abnormal economic conditions of the past few years, the inherent difficulty of estimating economic growth and a bit of cultural bias at the Fed, experts tell Institutional Investor.
As for the peculiar economic factors, "things happened that the Fed didn't anticipate," Donald Kohn, a former Fed governor and now a senior fellow at the Brookings Institution, told II
A larger problem might be that "everybody's economic forecasts are bad," Alex Pollock, former president of the Federal Home Loan Bank of Chicago, and now a resident fellow at the American Enterprise Institute, told II. "The Fed is no different than everyone else."
And on the cultural front, the Fed's job is to boost the economy, so a bit of optimism is built in to the institution, experts say.
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