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Bernanke on Auditing the Fed: 'We Hold Ourselves Accountable Pretty Well'

By    |   Tuesday, 03 March 2015 02:00 PM

Former Federal Reserve Chairman Ben Bernanke isn't exactly jumping for joy over proposals by congressional Republicans to audit the central bank.

"We hold ourselves accountable pretty well," he said in panel discussion at the Brookings Institution, Barron's reports.

The Fed publicizes its policies, goals and economic projections throughout the year, with the chairman appearing before Congress twice a year. "I don't think Congress has failed to make the Fed accountable on those grounds," Bernanke noted.

Sen. Rand Paul's, R-Ky., "Audit the Fed" bill would have the Government Accountability Office assess Fed policy decisions and transactions with foreign banks. Another proposal would mandate that the Fed use mathematical rules — such as the Taylor Rule — to set policy.

Bernanke said the Fed already has enough rules. It is committed to a 2 percent inflation target, for example. "I don't think you can get much more precise than that," he said.

During financial and economic crises, the Fed needs freedom, Bernanke said. In 2008, more rules "would have not been very helpful." The Fed provided massive stimulus then, with interest-rate cuts and quantitative easing.

Others agree with Bernanke that there is no reason to audit the Fed. It's a "bad idea period," star CNBC commentator Ron Insana wrote in a commentary for CNBC. http://www.cnbc.com/id/102469189 "Letting Congress pressure the Fed on monetary policy is almost as dangerous as letting Congress decide on interest-rate policy itself."

Insana isn't exactly bowled over by Congress' competence. "This is a group that can't decide to fully fund Homeland Security without falling on its sword," he quipped. "Best to leave interest-rate policy in the hands of the central bank."

The Taylor rule, named for Stanford economist John Taylor, would require the Fed to raise interest rates when inflation and GDP growth exceed pre-set targets and cut rates when they fall short of those targets.

"This may surprise some conservative economists, and members of Congress, but the Fed has been following a modified 'Taylor Rule' for over two decades," Insana stated.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Economists' consensus is that the central bank will begin raising rates around mid-year.

Bernanke also said presidents should be given more power in times of economic crisis, according to MarketWatch. They should be allowed to declare economic emergencies just as they are able to declare war, he said.

Financial crises "tend to have a certain chaotic element to them" requiring quick action, Bernanke said. So we should consider giving "the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed."

During the financial crisis of 2008, President Bush had some difficulty in getting Congress to approve fiscal stimulus and bailout plans.

Bernanke is not counting on adoption of his proposal. "I am sure it is not politically possible, but it would be worth thinking about," he said.

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Former Federal Reserve Chairman Ben Bernanke isn't exactly jumping for joy over proposals by congressional Republicans to audit the central bank.
Bernanke, Fed, audit, accountable
Tuesday, 03 March 2015 02:00 PM
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