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Public Statements

Federal Reserve Transparency and Political Independence

Floor Speech

Location: Washington, DC

Mr. RYAN of Wisconsin. Mr. Speaker, in response to the recession and financial crisis, the Federal Reserve had to take a variety of unorthodox measures to stabilize our credit markets and resuscitate the economy. Many in Congress have felt unease as the Fed took emergency actions to rescue individual companies and launched a variety of new credit facilities for an increasing number of banks, financial institutions and even investors. I share this unease and I believe that Congress should have the ability to gather information about the Fed's actions. That is why I voted in favor of H.R. 459, the Federal Reserve Transparency Act.

However, I do want to register my caution about opening up the Fed's monetary policy deliberations and actions to a government audit as it could erode the Fed's political independence. Even the appearance of politicians gaining some measure of influence over monetary policy decisions could have disastrous consequences. Political independence is not simply a luxury for our central bank. It is a core principle of good economic policy that yields real benefits for the American people. A number of empirical studies have shown that countries with independent central banks tend to have steadier economic growth and low and stable rates of inflation. This is not surprising. Just as politicians involved in fiscal policy have a bias toward greater spending, monetary policy influenced by politics would have a bias toward looser credit over the short term and therefore higher rates of inflation over the longer term. Financial markets would immediately recognize this and push up our borrowing rates and weaken our currency.

Congress should strive for robust oversight of the Fed, but it must guard against political interference. In the end, an independent Federal Reserve with a clear and focused mandate is the best way to achieve the desirable ends of sustainable economic growth, job creation, and low inflation.

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