Bernanke: Fed never influenced by politics

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WASHINGTON, Aug. 8 (UPI) -- Federal Reserve Chairman Ben Bernanke said the U.S. central bank is never swayed by political pressures and declared Europe needed its own version of the Fed.

"It really helps an economy to have a strong and independent central bank," Bernanke told public educators at the Fed town hall-style meeting in Washington and by video link to educators gathered at regional reserve banks.

"What I mean by that is a central bank that can make monetary policy decisions without being influenced by short-term political pressures," he said after being asked how the Fed balances between avoiding partisan leanings and offering objective financial leadership.

The Fed was created 99 years ago from a plan by Sen. Nelson Aldrich, R-R.I., who called for a central banking system with no political involvement. The Federal Reserve Act, which passed Congress on partisan lines Dec. 23, 1913, adjusted the Aldrich plan by making the Fed's policy-making board, known as the Federal Open Market Committee, controlled by the government. The committee is appointed by the president and confirmed by the Senate.

Bernanke told the educators Tuesday that when the Fed committee meets to make policy decisions, "there's never any discussion" about political considerations.

"That's the balance that we try to achieve -- independence in order to make good decisions but accountability and transparency to make that independence consistent with our democratic framework," he said.

The Fed said a week ago, after its Aug. 1 policy-making meeting, the rate of economic growth had slowed and was likely to remain "moderate over coming quarters."

But it deferred any action at least until the committee's next meeting Sept. 12-13.

Federal Reserve Bank of Boston President Eric Rosengren, who favors more aggressive Fed action to stimulate growth and lower unemployment, said in an interview the Fed, in trying to be non-political, was actually letting political thinking to influence its decision making, which has caused it to be less decisive that it would be if it were truly non-political.

The Fed should not worry when it meets next month if its decision is seen as influencing the presidential election, he told The Boston Globe in an interview published Tuesday.

"We don't get to pick the timing of a global slowdown," Rosengren said. "If there's a slowdown and you have an independent central bank, the appropriate response is to act. I think that's exactly what we should do."

Rosengren said he wanted the Fed to buy mortgage securities to push home loan rates lower, which would make housing cheaper, boost the real estate market and free up money for homeowners to spend elsewhere.

Economist Paul Krugman wrote in a New York Times blog, "I really believe that we have reached a point where the Fed is afraid to do its job, for fear of being accused of helping [President Barack] Obama," who is running for re-election.

Krugman -- a self-proclaimed liberal economist who teaches as Princeton University and the London School of Economics and won the Nobel Memorial Prize in Economic Sciences in 2008 -- said in his July 18 blog Bernanke testified on Capitol Hill the economy was in bad shape and the Fed had the power to take action.

But he "declined to, you know, actually take action," Krugman said in his blog, headlined "The Feckless Fed."

In his town hall, Bernanke said a central economic organization in Europe like the Federal Reserve System would help solve the European economic crises.

"If Europe had a single fiscal authority, that would put them in a much closer situation relative to the United States," he said. "That would probably address many of the concerns, many of the problems that they had."

But "getting to that point is very difficult," he acknowledged.

"You have 17 different countries," ABC News quoted him as saying. "Each set of taxpayers want to make sure that their own country is being fairly treated."

The European Union has the European Central Bank, which administers the monetary policy of the 17 eurozone members. The entire EU has is made up of 27 countries.