The Federal Reserve warned on Thursday that a growing congressional threat to curtail its independence would destabilise markets and raise the cost of servicing US debt for “current and future generations”.
Ron Paul, the Texas Republican, has gathered the support of a majority of the House of Representatives for a bill that would audit the Fed’s monetary policy decisions. He told a Congressional hearing he wanted the power to prevent the Fed being "secret and clandestine and serving special interests”.Donald Kohn, vice-chairman of the Fed, argued at the House financial services subcommittee hearing that any sense of political interference would negatively affect markets. “Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation,” he said.
Not only did Mr Kohn argue that the Fed should be given the power to regulate large systemically significant companies, but he argued against giving up responsibility for consumer protection, asking Congress to overturn the Obama administration’s proposal to create a new Consumer Financial Protection Agency.