Sen. Chris Dodd’s reform bill would jeopardize the Fed’s ability to safeguard the U.S. economy, Frederic Mishkin, former Federal Reserve Board governor and a Columbia University economics professor, told CNBC on Thursday.
“You don’t want to put the central bank in a situation where it can’t do its job,” he 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.”
Sen Dodd (D-Cn.) and Rep. Ron Paul (R-Tx.) have both proposed bills to reform the Fed.
While the central bank should be held accountable, said Mishkin, Dodd’s bill would undermine its 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.