, Former U.S. Treasury Secretary Larry Summers recently said that judging from the suffocating economic situation facing the United States, those claims that the Fed should maintain its independence from the government are completely outdated.
Sanmers said in a speech on IMF that the independence of the central bank comes from a good understanding of current macroeconomic policies, but under the current economic situation in the United States, it is not very appropriate to keep the central bank independent.
In the 1970s and 1980s, the central bank needed to maintain a certain degree of independence. This is because White House and Congress sometimes see unexpected short-term benefits of inflation.
But Sanmers said this was in the past, and the current U.S. economy faced a long-term stagnation and weak demand.
To change this situation, the Treasury should use the current low interest rate policy to issue long-term bonds, and the Fed should not interfere in the matter.
After the financial crisis, the work content of the US Treasury Department and the Federal Reserve often has intersections. Government spending is rising, the Treasury Department is selling debt, while the Fed is heading in the opposite direction, buying large amounts of bonds through quantitative easing plans to shorten the maturity structure and provide stimulus to the economy.
Sanmers said that in the future, the two institutions should strengthen cooperation to ensure that the effectiveness of the economic stimulus plan can be implemented. However, market experts may worry that the cooperation between the Treasury and the Fed will lead to a strong increase in inflation.
He pointed out: "I think in the current economic environment, this kind of cooperation has more advantages than disadvantages. Policy makers should focus on economic growth. If they successfully stimulate demand growth, the long-term debt-GDP ratio will also develop in a sustainable direction."
