The Warren Wing -'Sanders' Plan To Reform The Fed Exposes A Democratic Rift On Wall Street' - HuffPo [View all]

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Sanders' Plan To Reform The Fed Exposes A Democratic Rift On Wall Street
The Clinton wing of the party is still figuring out what to do with the Warren wing.
Daniel Marans - HuffPo
12/30/2015 03:24 pm ET


Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) put forward a lengthy list of Fed policy reforms on Dec. 23, 2015.
Joshua Lott/Getty Images

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The Federal Reserve is becoming the focal point of a longstanding divide between more business-friendly Democrats and the party’s populist branch over how the next president should promote full employment and police Wall Street.

Democratic presidential hopeful Sen. Bernie Sanders (I-Vt.) put forward a lengthy list of proposals for reforming the Federal Reserve in a Dec. 23 op-ed in the New York Times.

Lawrence Summers, a former top economic adviser to President Barack Obama, who nearly became Fed chairman in 2013, penned a response on Tuesday agreeing with Sanders on some grounds, but forcefully pushing back against the notion that Wall Street influence at the Fed is too pervasive.

The disagreement between Sanders and Summers embodies a larger rift within liberal ranks about the need to lessen the influence of Wall Street at all levels of government. But it also reflects broad agreement on the centrality of the Fed as an enabler of economic growth and the need for greater financial reforms.

The Fed has a dual mandate to maximize employment and maintain stable prices, which it does primarily by adjusting a benchmark interest rate. Sanders argues that the proverbial revolving door between Wall Street and the Federal Reserve has led the central bank to neglect the public in both of these duties.

Like many other progressive lawmakers, advocates and economists, Sanders believes that the Fed should not have raised the key interest rate -- as it did earlier this month -- until unemployment was lower and wage growth was higher. Prices, these critics note, have been rising at a rate well below 2 percent, the inflation target the Fed currently uses as a sign it must raise rates to prevent the economy from overheating dangerously.

“Raising rates must be done only as a last resort -- not to fight phantom inflation,” Sanders wrote in his op-ed. Sanders also contends the Fed should have done more to impose conditions on its emergency lending to the big banks during the financial crisis and that it should be doing more to regulate them now.

To address both of these problems, Sanders calls for a series of reforms of Fed governance aimed at rooting out conflicts of interest that make the Fed more beholden to financial elites and less sensitive to the needs of ordinary people.

“If I were elected president, the foxes would no longer guard the henhouse,” Sanders wrote.

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More: http://www.huffingtonpost.com/entry/bernie-sanders-the-fed-wall-street_5684180ae4b0b958f65affd5?qicz0k9