While it is "not too surprising" that there would be a move to restructure the Federal Reserve system after two years of financial turmoil, "some of the proposals to change the Fed's structure are misguided and even pose serious risks to the health of our economy," Federal Reserve Bank of Philadelphia president and chief executive officer Charles I. Plosser told the World Affairs Council of Philadelphia yesterday.
The current system allows policymakers "independence when conducting monetary policy but in return requires transparency and accountability to the American people," Plosser said, according to a prepared text of his remarks that were released by the Fed.
Financial market conditions have improved, he said, and the Fed allowed most of its temporary special liquidity programs to expire on Feb. 1.
"Although we have yet to see robust employment growth, there are signs that labor market conditions are starting to slowly improve and it appears that a modest economic recovery has begun," Plosser said.
Policymakers have turned their efforts to averting future crises.
"Unfortunately, some initiatives would strike at the very foundations of sound and responsible central banking," Plosser warned.
Among the perceived threats to the central bank's independence is the "Audit the Fed" amendment passed by the House in December.
Plosser said the amendment would allow any legislator to demand an "audit" Government Accountability Office of the Federal Reserve's monetary policy decisions.
He said the audit was not "in the usual accounting sense of the term, since the Fed's financial statements and controls are already subject to extensive outside audits by the GAO and a public accounting firm."
The amendment would be used to "investigate a monetary policy decision whenever any member of Congress opposes a decision to change interest rates," according to Plosser.
"This would undermine the Fed's credibility and its ability to conduct monetary policy in the long-term interests of the American public," he said.