As an indication of the pressure that’s still on the Fed chairman—and the respect that his organization has lost in Congress—Koo points out that he himself was invited to testify as part of the semiannual Humphrey-Hawkins testimony in which the Federal Reserve chairman reports on monetary policy and the state of the economy.
‘Mr Bernanke didn’t have to sit next to me and testify. But I was supposed to testify right after Mr Bernanke. But the fact that people like Barney Frank are bringing in outsiders for Humphrey-Hawkins testimony, when Humphrey-Hawkins testimony was supposed to be exclusively for the Fed chairman to explain every six months to the Congress, suggests that those people are not very happy with the Fed.’
But the session scheduled for February 10 didn’t take place because of a huge snowstorm. It was rearranged again without Koo, although he had already handed in his testimony. But it’s here that Koo makes the startling implication that Bernanke ‘adjusted’ his comments in the rescheduled testimony from his initial position to views that he knew better fit in with Koo’s.
‘When I listened to him this time around, I almost thought he read my testimony. He said nothing that contradicted what I said in that testimony and that led me to believe that he did read it. The other private sector participants, like John Taylor, are Washington regulars. But the fact that Barney Frank invited me from Tokyo—well, if I were Bernanke knowing how little respect [I] command in Congress, I’d read this Richard Koo's work to make sure I don't have to confront this guy’s work, because I might end up on the wrong side of Barney Frank.
‘His answers were much more attuned to what I've been saying all along. So I was very surprised. Especially when these Republican guys with nothing better to do were trying to force Bernanke to say let’s cut the budget deficit now…I was watching the whole thing on the TV here in my house in Tokyo and Bernanke wouldn’t be drawn into it. He kept on saying, “This program has to be a long-term program. The exit strategy has to be a long-term thing. Ten years from now we’re going to do this”. You know, that kind of tone. And that's quite different from what the guy used to say.’
For Koo, this is evidence that Bernanke is not beyond redemption. But he still has a huge task to restore the credibility of his organization and to maintain its relative autonomy. So from Koo’s perspective, the debate on central bank independence should actually focus on the Fed.
‘Compared to the BOJ,’ Koo says, ‘Right now the Federal Reserve is in far greater danger of losing independence.’