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Former United States Federal leaders call for independence of Central Bank

File photo. Photograph:( AFP )

Reuters Washington, USA Aug 07, 2019, 06.09 PM (IST)

Four former leaders of the US Federal Reserve have called for the independence of the central bank, saying that the Fed and its chair must be permitted to act 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.

In an opinion piece published on The Wall Street Journal on Monday, Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen said that an economy is strongest and functions best when the central bank acts independently and relies solely on sound economic principles and data.

The piece wrote, "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".

"Even the perception that monetary-policy decisions are politically motivated, or influenced by threats that policymakers won't be able to serve out their terms of office, can undermine public confidence that the central bank is acting in the best interest of the economy. That can lead to unstable financial markets and worse economic outcomes," the piece wrote.

The co-signed article came after US President Donald Trump's criticism of Fed Chairman Jerome Powell last week when he lashed out at Powell for not signalling the start of "a lengthy and aggressive rate-cutting cycle." Trump on Monday urged the Fed to pay attention to his remarks when he falsely accused China of "currency manipulation" on Twitter.

Trump has repeatedly voiced his discontent of the Fed's monetary policy over the past few months and even reportedly discussed an attempt to remove Powell from his position, raising questions about the central bank's independence.

Powell, meanwhile, has repeatedly stressed the Fed's commitment to independence and said he fully intends to serve a four-year term.

Story highlights

In an opinion piece published on The Wall Street Journal on Monday, four former Fed leaders said that an economy is strongest and functions best when the central bank acts independently and relies solely on sound economic principles and data.