Active cooperation between the Federal Reserve and the U.S. Treasury Department on debt management would put the central bank's monetary policy independence at risk, said Fed Governor Jerome Powell.
"I believe that the existing institutional arrangements have served the public well. The independence of the Federal Reserve's monetary policy is highly valuable to society," Powell said Tuesday in remarks prepared for a Brookings Institution panel discussion in Washington. "Any active collaboration between debt management and monetary policy, even in a crisis, would risk calling into question that independence."
Powell's remarks were in response to a paper by Harvard University professors, including former Treasury Secretary Lawrence Summers, proposing "revised institutional arrangements to promote greater cooperation between the Treasury and the Federal Reserve in setting debt management policy."
"This is particularly important when conventional monetary policy becomes constrained by the zero lower bound, leaving debt management as one of the few policy levers to support aggregate demand," wrote Robin Greenwood, Samuel G. Hanson, Joshua S. Rudolph, and Summers in the paper.
