Tags: Insana | audit | Fed | Congress

Ron Insana: Auditing the Fed Is 'Bad Idea Period'

By    |   Tuesday, 03 March 2015 08:44 AM

CNBC commentator Ron Insana isn't too enamored with the movement among Republicans in Congress to audit the Federal Reserve's monetary policy.

It's a "bad idea. Period," he writes in a commentary for CNBC. "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 quips. "Best to leave interest-rate policy in the hands of the central bank."

Many of the Fed's critics in Congress would like to see the central bank adopt the Taylor rule, named for Stanford economist John Taylor. The rule would have the Fed 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 states.

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.

The Fed has pledged to be "patient" in raising rates. And former Treasury Secretary Larry Summers, says the central bank is right to adopt that stance.

"It should not raise rates until there is clear evidence that inflation, and inflation expectations, are in danger of exceeding its 2 percent target," Summers writes in the Financial Times.

The Fed's favored inflation measure, the personal consumption expenditures price index, rose only 0.2 percent in the 12 months through January.

"The Fed could inject much needed confidence in the economy today and minimize future risks by announcing and following a strategy of not raising rates until it sees the whites of inflation’s eyes," Summers argues.

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CNBC commentator Ron Insana isn't too enamored with the movement among Republicans in Congress to audit the Federal Reserve's monetary policy.
Insana, audit, Fed, Congress
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2015-44-03
Tuesday, 03 March 2015 08:44 AM
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