Beth Hammack, President of the Federal Reserve Bank of Cleveland, is defending the Federal Reserve’s independence from the U.S. Treasury. She warns that central banks with less independence from their governments tend to produce higher inflation rates. The 1951 Treasury-Fed Accord established this separation of roles, restoring the Fed’s ability to set monetary policy independently of the government’s borrowing needs. If the Fed were to lose its independence, long-term interest rates would need to incorporate a higher inflation premium, affecting the entire fixed income market from Treasuries to mortgage-backed securities.
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