Supporters say Bernanke needs flexibility, while critics worry taxpayers could be stuck bailing out banksFor a central banker, the most important parts of the job can be the most arcane. Federal Reserve Board Chairman Ben S. Bernanke drew few headlines when he sent a brief letter on May 13 to Speaker of the House Nancy Pelosi (D-Calif.) and four other congressional leaders about a seemingly obscure housekeeping matter. He asked Congress to authorize the Fed to pay interest to banks on the money they keep on deposit at the central bank, beginning immediately; under current law, the Fed can't pay interest until 2011.
Bernanke's request could be a big deal. If approved it will set in motion a chain of events that could increase the Fed's flexibility and power in ways that many economists—and members of Congress—have yet to comprehend. It's part of his campaign to help ailing banks without spoiling the Fed's other mission, which is to control inflation. Once again, the mild-mannered Bernanke is forcing authors to rewrite their economics textbooks.
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