The Chairman of the US Federal Reserve, Ben Bernanke emphasized that all the central banks including the Fed, must be able to make key decisions, without any kind of political meddling.
They should be given the independence over setting interest rates. If the banks are restricted from executing monetary policy, it would surely lead to economic instability and "boom-bust cycles".
Usually, politicians prefer holding interest rates low, as they consider it a means of motivating the economy and boosting jobs. Mr. Bernanke said, “Such gains may be popular at first, and thus helpful in an election campaign, but they are not sustainable and soon evaporate, leaving behind inflationary pressures that worsen the economy's long-term prospects”.
He shared his views in a speech, which he delivered at a conference in Tokyo on the future of central banking in a globalised economy. He stated that undesirable boom-bust cycles can be generated by the political interference in monetary policy. This can consequently lead to more inflation and less stability in economy.
Fed did not consider targeting a higher level of inflation, revealed Mr. Bernanke. He shared that it will be a dangerous changeover.
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