The Fed is Being Pushed Around

Federal Reserve Chairman Ben Bernanke doesn’t say “core inflation” anymore, at least not in public. Core inflation, as the Wall Street Journal explains, refers to price increases excluding food and energy prices - an important predictor of inflation in the medium-term as broader prices necessarily rise when gas and food does. But the term infuriated the Fed’s critics, particularly on the Hill, so Bernanke has eradicated the term from his public vocabulary.

Bernanke doesn’t reveal much with his poker face and careful language but it is easy to surmise the man must be longing for the days when the Fed Chairman’s role in the economy was seen as sacrosanct - and above politics. Since the start of the financial crisis the Fed’s policies in dealing with the mess has been questioned by members of Congress and other public figures, few of which have the educational creditentials to, let’s face it, talk to Bernanke as an equal, at least in the field of economics and monetary policy.

I know, I know - it’s all part of the democratic process. Unfortunately there is more than a whiff of politics behind some of these critics. More to the point, such obvious dissent between two parties opens the door (as any parental unit to a persistent child can tell you) to such stunts that AIG pulled, which was to go public with an offer it made to the Fed to repurchase subprime-mortgage bonds that the central bank acquired from the insurer when it bailed it out in 2008. The WSJ, in another article, describes AIG’s position as maintaining that the sale would benefit taxpayers, as well as, of course, itself. What it doesn’t want is for another bank or hedge fund to snap up the securities because that would open it up to further risk. So after sensing the Fed was waffling on its private offer, it went public hoping to play on earlier perceptions in Congress and among others that the Fed had been too easy on AIG.

Poor Fed. Poor beleaguered Ben Bernanke.

So went my thinking about the Fed, and politics and blustering bombastic politicians until I got a timely reminder about how sweet our sunshine laws, as they are sometimes called, can be.

It took a court case that went all the way to the Supreme Court for the Fed to identify commercial banks that received emergency loans from the central bank’s discount window during the 2008 crisis. The banks, as well as the Fed, did not want see these names and sensitive lending data go public for their own reasons. This week the Supreme Court left in place a 2010 federal appeals court ruling that ordered the Fed to identify the banks. The Fed has said it will comply. One rationale for not wanting the information released is that, according to the Clearing House Association, the public may draw inferences about the current conditions of the financial institutions whether justified or not.

Pardon me for pointing out the obvious, but opacity had, well, everything to do with the financial meltdown. The trump card argument for overriding the Fed’s wishes though, was put best by Bloomberg News editor-in-chief Matthew Winkler, who said the Fed "forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny."