US Treasury Secretary Timothy Geithner said on Friday that US President Barack Obama’s administration will oppose any effort in Congress to strip the US Federal Reserve of its legal mandate to pursue low unemployment.
Some conservative Republicans have said the central bank should just concentrate on keeping inflation low and abandon its current dual goals of pursuing low inflation and low unemployment.
Geithner, in an interview with Bloomberg Television, said that the Fed’s dual mandate has served the country very well over time and the administration was opposed to changing it.
Geithner also warned Republicans about politicizing the Fed. A number of conservative economists and Republicans in Congress have attacked the central bank for its decision to launch a new round of US$600 billion in purchases of Treasury securities as a way to lower long-term interest rates. They warn this effort runs the risk of weakening the value of the US dollar and setting off higher inflation down the road.
Asked about this criticism, Geithner said: “It is very important to keep politics out of monetary policy, as Congress recognized when it established the Fed.”
Geithner said it was essential that policymakers “respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure ... they are promoting sustainable economic growth.”
Republican Representative Mike Pence, a chief sponsor of legislation on changing the Fed’s mandate, said this week that he believed it was time to return the central bank to a single mission of “protecting the fundamental strength and integrity of the American dollar.”
Pence said at a news -conference that the Fed had made a mistake in launching a new round of bond purchases. He said this effort would “do nothing more than dilute the value of the dollar and further disrupt the global financial system.”
Fed officials have said they believe the Fed’s dual mandate of pursuing stable prices and low unemployment was proper.
Other nations, including China and Germany, have been critical of the Fed’s bond-buying move, arguing that it would weaken the value of the US dollar against their currencies, hurting the ability of their companies to export.
China’s criticism came at the same time that the administration is urging Beijing to allow the Chinese currency to rise in value.
US manufacturers argue that the yuan is undervalued by as much as 40 percent, giving Chinese manufacturers a competitive advantage against US companies.
Geithner said he did not believe the Fed’s bond buying had hurt the administration’s efforts to get the Chinese to revalue their currency. He said the last time China allowed its currency to appreciate, it increased in value by about 20 percent against the US dollar over a two-year period ending in 2008.
“They did that then too because they recognized it was important to their capacity to grow in the future,” Geithner said. “So I am very confident they are going to let it move. We just want to make sure they keep moving.”
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