Bernanke should depoliticize the Fed, critics say

Once safely ensconced in another four-year term as Federal Reserve chairman, Ben Bernanke needs to separate policy from politics and establish its independence from other Washington power centers, some critics say.

Mr. Bernanke and former chairman Alan Greenspan “fully politicized the Fed,” said Keith McCullough, chief executive of Research Edge LLC in New York.

The Fed responds to political pressure and “always cuts [short-term rates] all the way down to zero” in responding to crises, he said.

Low rates help financial institutions, Mr. McCullough said, but hurt savers and consumers.

“You do want to see an independent Fed,” said Tim Anderson, chief fixed-income officer at Riverfront Investment Group LLC in Richmond, Va.

“There’s been a lot of close coordination [by the Fed] with the [Department of the] Treasury and the administration, and that’s gotten people nervous,” he said.

But Mr. Bernanke has “certainly been better” than some other candidates who were considered for the Fed chairmanship, such as Larry Summers, director of the White House’s National Economic Council, Mr. Anderson said.

Mr. Summers, a former secretary of the Treasury in the Clinton administration, would have been too political, he said.

Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co. LLC of Newport Beach, Calif., told CNBC today that Mr. Bernanke needs to “define the institutional integrity” of the Fed.

Mr. El-Erian suggested that the Fed had strayed from its role of being an objective financial “referee” to becoming a political player on economic matters.

But Fed chairmen always have to deal with politics, Mr. Anderson said.

“It will be interesting to watch the [Bernanke confirmation] hearings,” he said.

Despite some probable political fireworks, “there’s no doubt [Mr. Bernanke] will be approved,” Mr. Anderson said.

Related Topics: Federal Reserve