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May 26, 2010    

Fed chairman warns of political interference

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by Kay Murchie

Ben Bernanke, the chairman of the US Federal Reserve, has emphasised the importance of central banks to be free of political meddling and to keep their independence.

Mr Bernanke believes central banks throughout the world should be able to make key economic decisions about monetary policy without Government interference.

His statement comes as some Governments throughout the world are trying to influence central banks into keeping interest rates low - a move popular with politicians as it boosts the economy and jobs.

Speaking at a conference in Tokyo, 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 added: “Thus political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.”

He believes greater clarity on the direction of interest rates, helps shape behaviour of investors, consumers and businesses.

The Fed has maintained interest rates at the historically low level of between 0% and 0.25% since December 2008, as a result of subdued inflation and high unemployment.

It has reiterated its policy to maintain low interest rates for “an extended period”.

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