Fisher: Central Bank Is Under Attack

By Vivien Lou Chen and Margot Habiby - Sep 28, 2011 4:09 AM GMT+0700
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Richard Fisher, president of the Federal Reserve Bank of Dallas. Photographer: Daniel Acker/Bloomberg

Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s independence is under attack from both ends of the political spectrum in Congress, and he singled out two of the critics by name.

“We are being attacked from the right and from the left, and I don’t see much difference between a certain congressman from Texas named Ron Paul and a certain congressman from Massachusetts named Barney Frank,” Fisher said in response to audience questions after a speech in Dallas. Paul is a Republican and Frank is a Democrat.

Fisher’s remarks are uncommon among central bank officials, who tend to defer to Congress and its members, said Sung Won Sohn, former chief economist at Wells Fargo & Co. The Dallas Fed chief is the only member of the Federal Open Market Committee to have run for Congress, losing as a Democrat to Republican Senator Kay Bailey Hutchison twice, in 1993 and 1994.

His comments are “true as a factual matter,” said Sohn, who served as a White House staff economist under Richard Nixon from 1973 to 1974 and is now a professor at California State University-Channel Islands. “But a person in the position of president of a Federal Reserve bank should be careful about what he says and how he says it because the Fed actually reports to Congress and Congress can do anything it wants to the Fed.”

‘End the Fed’

Paul, now a Republican presidential candidate, advocates limited government and has written a book titled “End the Fed.” In 2010, the House passed his legislation requiring audits of central bank interest-rate decisions. The Senate rejected the measure, and Congress ended up approving a compromise that requires disclosure of details of the Fed’s emergency lending and monetary-policy actions during the financial crisis.

Frank, who has served in Congress since 1981, says regional Federal Reserve bank presidents shouldn’t be allowed to vote on interest rates because they aren’t appointed by elected officials. He said this month he will submit a new version of legislation to cut the voting rights of five rotating regional representatives from the 12-member Federal Open Market Committee.

“I don’t see any difference between them,” Fisher said, referring to Frank and Paul. “They believe we have too much independence. They believe that Congress should be in charge of monetary policy.”

Fed bank presidents are chosen by the bank’s boards, unlike members of the central bank’s Washington-based Board of Governors, who are nominated by the U.S. president and confirmed by the Senate.

Substance Versus Structure

Fisher ``gets the fundamental thing wrong because my point wasn’t about the substance of policy, it’s about the structure,” Frank said in a telephone interview today. “I would like to see more independence. In fact, I’d like to see more independence from the business community and from the financial community.”

Rachel Mills, a spokeswoman for Paul, said the congressman “prides himself on his ability to build coalitions with people across the aisle on issues they agree on.” She said Paul and Frank have a “respectful” and “cordial” relationship even when they disagree on how they would change the Fed.

Fisher served under two administrations. He was an assistant to Treasury Secretary W. Michael Blumenthal in the Carter administration, during the dollar crash of 1978, and deputy U.S. trade representative under President Bill Clinton with the rank of ambassador from 1997 to 2001. Today, he described himself as “apolitical.”

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net