US Economy - The credit crunch one year on
The chairman of the Federal Reserve has cast aside any notion that central bankers should be boring. He has slashed interest rates; rolled out a dizzying array of new lending programs; backed the debt of Bear Stearns, a failing investment bank; agreed to lend to Fannie Mae and Freddie Mac, America’s troubled, quasi-private mortgage agencies; argued for fiscal stimulus and mortgage write-downs; and proposed an expansion of the Fed’s regulatory domain.The central bank is lending to private companies on an unprecedented scale and is thus making decisions it long sought to avoid about the allocation of credit. It is also acquiring new powers of oversight. Politicians could chafe at the Fed’s power: why, they might ask, should unelected officials choose who benefits from taxpayers’ money? And they might press the central bank to pursue political ends—such as propping up favored borrowers—that interfere with monetary policy.
Events beyond the Fed’s control magnify these risks. Unemployment and inflation are likely to remain uncomfortably high for the next year or two; such a combination has fueled political antagonism in the past. And the next president will have an instant opportunity to fill three seats on the Fed’s seven-member board of governors (one is vacant; another soon will be; a third governor’s term has expired). He and Congress will have a chance to shape the Fed’s priorities on both regulation and monetary policy.
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