The Federal Reserve Diet

If Barack Obama proceeds with plans to give the US Federal Reserve more regulatory power, pressure for greater public accountability will persist. To protect the Fed’s independence, which is a global public good of the highest importance, he should cut back the Fed's authority to its core monetary-policy role.

LONDON – Markets around the world were relieved by the US Senate’s confirmation of Federal Reserve Board Chairman Ben Bernanke’s reappointment. It was the right decision from the perspective of financial stability; change at the top would have thrown in doubt the Fed’s determination to respond decisively to the crisis – and, indeed, its long-term commitment to low inflation.

Bernanke’s performance over the last two years has won high praise, and an extended political fight over control of US monetary policy was the last thing the world needed at what is still a very delicate moment for the global economy.

Nevertheless, 30 senators voted against Bernanke. This may, in part, have just been partisan politics, but Bernanke was appointed by President George W. Bush, and there were other voices, both Democrat and independent, raised against his reappointment.

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