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Stern Professors Petition for Fed Independence

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Among the 360-plus (and growing) economists, scholars, former Fed officials and investors that have signed and are circulating a petition to Congress and the Executive Branch urging them to keep the Federal Reserve independent are seven NYU Stern professors:

  • David Backus, Heinz Riehl Professor and Chair of the Department of Economics
  • Chris Edmond, Assistant Professor of Economics
  • Lasse Pedersen, John A. Paulson Professor of Finance and Alternative Investments
  • Thomas Sargent, William R. Berkley Professor of Economics and Business
  • Kermit Schoenholtz, Adjunct Professor
  • Paul Wachtel, Professor of Economics
  • Stanley Zin, Professor of Economics

They warned that that the vehemence of the criticism from Congress of the Fed’s handling of the financial crisis suggests a readiness to weaken the freedom the Fed has to move interest rates as it sees fit. They urge Congress to back off in order to avoid undermining the Fed’s ability to manage the economy and thwart inflation.

Read below for the petition in its entirety.


Open Letter to Congress and the Executive Branch

Amidst the debate over systemic regulation, the independence of U.S. monetary policy is at risk. We urge Congress and the Executive Branch to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability. There are three specific risks that must be contained.

First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.

Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.

If the Federal Reserve is given new responsibilities every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.