The threats hanging over the central bank could compromise its independence, warn Fed watchers. Several crucial decisions are approaching, including how to continue phasing out its emergency efforts to support the economy. The Fed has already said it will wind down the purchases of mortgage securities in March after buying about $1.25 trillion worth. In the more distant future, to avoid the risk of inflation, the central bank will need to raise its target interest rate above the current level near zero.
Rate increases are always unpopular, particularly when the unemployment rate is still high. But the political environment could make the decision even tougher.
“The current unpopularity of the Fed will make it more difficult for them to raise interest rates when the economy recovers,” said Karen Dynan, a former senior Fed economist who now heads the economic studies program at the Brookings Institution. “With the Fed under such close scrutiny, any move to raise interest rates will be challenged even more strongly than in the past.”
[blockquote]Rate increases are always unpopular….[/blockquote]
Oh really? Not to those of us who have money in savings accounts, certificates of deposit, money market funds and bonds who have seen our dividends drop to “near zero”.