Frederic Mishkin, former Federal Reserve Board governor, told CNBC on Thursday that Sen. Dodd’s reform bill, which calls for drastic reductions in Federal Reserve’s powers, would jeopardize the Fed’s ability to safeguard the U.S. economy.
“You don’t want to put the central bank in a situation where it can’t do its job,” Mishkin said. “If the central bank in a country is in fact too tied into the political process, what we find is, they’re more likely to print money, monetize the debt. And guess what you get out of that? A lot of inflation.”
Mishkin also reiterated the fact that the Fed should be held accountable, but, he noted, it has has to be done in a way that it doesn’t hinder the Fed’s ability to perform its functions. According to Mishkin, Dodd’s bill undermines the Federal Reserve’s ability to inject liquidity if necessary again. In particular, Dodd’s plan would put restrictions on the Fed’s ability to make loans, he said.
“The danger here is the Fed will not be able to do its job properly,” he said. “If the Federal Reserve had not been able to do what it did during this episode, we could have had a Depression.”
