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http://www.reuters.com/article/wtUSI...45907120090709
The U.S. Federal Reserve on Thursday launched a robust defense of its independence and warned that efforts in Congress to put monetary policy under political sway would hurt the economy.
Fed Vice Chairman Donald Kohn said opening up some of the U.S. central bank's most sensitive decisions to political scrutiny could result in higher long-term interest rates and hurt the United States' credit rating. Kohn was speaking before a Congressional panel where he was seeking to beat back a proposal that would open policy decisions by the U.S. central bank to audits by a federal watchdog agency.
"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 in testimony prepared for delivery to a House of Representatives Financial Services subcommittee.
Kohn's testimony comes as Congress debates President Barack Obama's plan for regulatory reform, which envisions the Fed taking on an expanded role monitoring risks across the entire financial system to help ward off future financial crises.
The proposal has increased calls for greater accountability at the central bank, which was already facing heavy scrutiny from lawmakers angered by its role in bailing out Wall Street.
Public anger over last year's financial crisis and Fed-backed bailouts of investment bank Bear Stearns and insurer American International Group has created a popular backlash that could gain momentum in Congress.
A bill put forward by Representative Ron Paul, a Texas Republican, would expose the Fed's decisions on monetary policy and emergency lending to audits by the Government Accountability Office. It has won support from a majority in the House of Representatives.
The GAO is currently prohibited from auditing these areas
