Fed's role makes its next move key; Political pressure on central bank grows

Fed's role makes its next move key
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Political pressure on central bank grows

By Neil Irwin
Washington Post Staff Writer
Thursday, November 12, 2009

The Federal Reserve has over the decades viewed its independence from political influence as crucial for its ability to guide the U.S. economy.

But the central bank's activist response to the financial crisis has exposed the Fed to immense political fallout. That will make it more difficult for the Fed to carry out its responsibilities of guiding the national economy out of a recession and withdrawing its emergency support for the economy at just the right time, say former Fed officials and others who closely follow the central bank.

Chairman Ben S. Bernanke, whose confirmation for a second term is pending in the Senate, is attempting a quiet campaign to maintain the Fed's standing on Capitol Hill, defending the central bank's handling of the financial crisis in private meetings with lawmakers and occasional public appearances. But so far, that approach has failed to shift the reality that the central bank is under fire as in no time since the Great Depression.

This week, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) called for stripping the Fed of its long-standing authority to regulate banks along with changing how regional Fed banks are governed. A bill proposed by Rep. Ron Paul (R-Tex.), author of the book "End the Fed," would increase oversight of the Fed's management of the money supply. The measure has been co-sponsored by a majority of the House.

And the aggressive steps the Fed has taken to rescue the economy in the last two years, such as bailing out American International Group and supporting

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