Washington & Wall Street: Fine Tuning & Fed Independence

posted by Joe DuganLeave a Comment A decade ago, former Federal Reserve Board Chairman Alan Greenspan and his colleagues on the Federal Open Market Committee were presiding over the lowest interest rates since WWII. The terrorist attack on September of 2001 had spurred the central bank to reverse course and ease tighter policy put in place to cool the financial bubble in technology stocks. The reason for this change in interest rate policy was to arrest any negative economic response from the dastardly act on 9/11.

 

But the long-term negative impact of that decision by the Fed continues to color our economic life even today.  No matter your good intentions as a central banker, attempting to fine tune the economy is a dangerous act of folly. In my last comment, “Bernanke’s Housing Bubble is Unsustainable,” we talked about why the Fed’s policies have created an unsustainable situation in the housing sector. The impending problems stemming from the latest round of Fed interest rate ease have begun to emerge in the past week, with financial markets showing more volatility than has been seen in years. But the chief problem facing financial markets is the total lack of independence from the White House of the Bernanke Fed.

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