Fed's Powell rejects Treasury-Fed cooperation as threat to central bank independence

Reuters

Published Sep 30, 2014 10:50AM ET

Updated Sep 30, 2014 11:10AM ET

Fed's Powell rejects Treasury-Fed cooperation as threat to central bank independence

By Howard Schneider WASHINGTON (Reuters) - Federal Reserve board member Jerome Powell said on Tuesday he feared any move for the Fed and the U.S. Treasury to cooperate on debt management and other issues would undermine the central bank's independence and should be avoided.

Powell was responding to research by a team of Harvard economists concluding that the Treasury's effort to ramp up its sales of longer-term bonds in recent years undercut the Fed's effort to bring down long-term rates through quantitative easing.

The economists, including former Treasury Secretary Lawrence Summers, suggested the two agencies coordinate - particularly in a crisis - to be sure the government's debt management plans and the Fed's monetary policy are in synch.

That proposal "seems to me to be fraught with risk for the Federal Reserve," said Powell, noting that when the Fed and Treasury did cooperate in the years after World War Two it cut into the Fed's independence.

"There is considerable evidence that monetary policy independence leads to better macroeconomic outcomes. Any active collaboration between debt management and monetary policy, even in a crisis, would risk calling into question that independence," Powell said.