Not according to the Washington Post. The Washington Post raises the concern that Congress may exert may oversight of the fed in response to the economic crisis and therefore that there will be political interference in the Fed's conduct. While Congress is obviously a political institution, the Fed was arguably over-responsive to the interests of the financial sector in prior years, acting in their best interest rather than in the interest of the economy as a whole. This is most obvious in the case of the housing bubble, where the Fed allowed it to grow to levels that imposed an enormous danger to the economy. It is possible that Alan Greenspan, Ben Bernanke and other top Fed officials were so incompetent that they did not recognize the housing bubble and the dangers it posed. However, it is likely that it was easier to ignore the risks posed due to the fact Wall Street financial firms were making enormous amounts of money on securitization, derivative issuance and trading, and other transactions that fed the bubble. Prior to the bubble, the Fed arguably was far more concerned about inflation than would have been warranted by a realistic assessment of the evidence of the risks posed by inflation. While even modest increases in the inflation rate can be very bad news for the financial sector (it reduces the value of their long-term loans), they have little consequence for the economy as a whole. The excessive influence of the financial industry on the Fed may have caused it to focus too much on keeping inflation low and insufficient attention to its other explicit goal, reaching 4.0 percent unemployment. In this context, increased congressional oversight is not politicization. It is simply replacing the Fed's excessive concern with the interests of the financial sector with the requirement that it respond to a larger group of economic interests. This possibility is never mentioned in the discussion in the Post.
--Dean Baker
