Fed Treasury Accord revisited?

I had pointed earlier that leading US policymakers are asking to revisit Fed-Treasury Accord. The Accord signed in 1951 led to independence of Fed and made Fed responsible for monetary policy. In this crisis, Fed has increasingly taken roles of Treasury and this has led experts to revisit the accord in order to send signals that independence of Fed will not be undermined.

Seeing these calls, Fed/Treasury have issued a joint press release which clarifies that Fed is responsible for monetary policy and not selective credit policy.

This joint statement reflects the common views of the Treasury and the Federal Reserve on the appropriate roles of the Federal Reserve and the Treasury during the current financial crisis and in the future and on the steps necessary to ensure that both financial and monetary stability will be achieved. 

They agree on following 4 points:

1. Treasury-Federal Reserve cooperation in improving the functioning of credit markets and fostering financial stability
2. The Federal Reserve to avoid credit risk and credit allocation
3. Need to preserve monetary stability
4. Need for a comprehensive resolution regime for systemically critical financial institutions

In the end it says:

In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.

Nice to see this development as it leads to some resurrection of Fed image which has been battered badly in this crisis. The Treasury should also walk the talk by issuing further statements on how the various facilities will be removed from Fed’s balance sheet.

Bank of Japan, Bank of England have also started buying fancy assets and would be good if they issue statements like this as well. Central Bank independence is something that needs to be preserved highly in the crisis.


2 Responses to “Fed Treasury Accord revisited?”

  1. Topics about Economy » Archive » Fed Treasury Accord revisited? « Mostly Economics Says:

    […] Amol Agrawal placed an observative post today on Fed Treasury Accord revisited? « Mostly EconomicsHere’s a quick excerptThis entry was posted on March 24, 2009 at 12:45 pm and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Policy. You can follow any responses to this entry through the … […]

  2. Six principles for Fed-Treasury Accord « Mostly Economics Says:

    […] this paperMarvin Goodfriend provides 6 principles for Fed-Treasury accord for fixing the credit policy used by […]

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