"Printing more money to play politics at this particular time in American history is almost treasonous in my opinion," [Perry] added. "We already tried this. All it's going to be doing is devaluing the dollar in our pocket, and we cannot afford that.  We have to learn the lessons of the past three years. They've been devastating."

Perry, when he met with reporters, was asked explicitly whether he was suggesting that such an action by the Fed would be strictly an attempt to help reelect the president. "If they print more money between now and this election I would suggest that's exactly what's going on," he replied.

"If this guy prints more money between now and the election, I don't know what you all would do to him in Iowa, but we would treat him pretty ugly down in Texas," Perry said of the possibility of another round of so-called quantitative easing in the money supply.

Q: There is an undercurrent of anti-Fed sentiment among the freshman Republicans. Support for the gold standard, anti-fiat currency… How do you respond to it?

A: I say I understand. I say gold is a very legitimate monetary system. However it will not end crises. It will not end credit bubbles. And it can be just as disruptive as a fiat currency – as an example the Great Depression when gold was hoarded and we had a very serious deflationary experience. Yes, the Fed contributed to it, but also governments contributed to it with their hoarding issues.

Q: But end the Fed?

A: I don’t see that a modern economy would function better without a central bank. We might have stable prices, but that is on average. In the meantime, we would have very strong deflationary pressures and very high inflationary pressures. The average is zero. That is the problem with that. It is not going to solve the world’s problems.

I have no intention of supporting, under political pressure, the monetizing of the debt.. [That would be] a central banker’s cardinal sin.

I have reported to my colleagues at the FOMC that the prevailing sentiment among these business operators is that the politicians and officials who craft and enforce the rules are doing so in a capricious manner that makes long-term planning difficult, if not impossible. They are increasingly distressed by the lack of consistent direction coming from Washington. They are confused and dispirited by random refereeing. So they are calling time-outs and heading to the sidelines while they wait for the referees to settle on the rules of the game.

If this is so, no amount of further monetary policy accommodation can offset the retarding effect of heightened uncertainty over the fiscal and regulatory direction of the country. As long as our economic players—businesses and consumers—are beset by unmanageable uncertainty, they will refrain from making decisions that provide the stuff of economic growth. Indeed, one could posit that further monetary accommodation might make the situation worse if private sector operators were to conclude that the Federal Reserve has become politically pliable and is prone to substituting such accommodation for fiscal discipline.

Congress, through the Government Accountability Office, can and does audit all parts of operations, except for monetary policy and related areas explicitly exempted by a 1978 provision passed by the Congress. The Congress created that exemption to protect monetary policy from short-term political pressures and thereby to support our ability to effectively pursue our mandated objectives of maximum employment and price stability.

Independent does not mean unaccountable. In its making of monetary policy, the Fed is highly transparent, providing detailed minutes of policy meetings and regular testimony before Congress, among other information. Our financial statements are public and audited by an outside accounting firm; we publish our balance sheet weekly; and we provide monthly reports with extensive information on all the temporary lending facilities developed during the crisis. Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption. The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation.

We've got very large fiscal deficits. We've got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.

...

So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward.

...

The Congress has thought over the last 100 years about how much independence to give the central bank. And when they really think about it, at the end of the day, they want the level of independence that we have. And so I think that will be the end outcome of this.  I don't think anyone involved intends to monetize the debt, but that is what it looks like to outsiders.

As reported by Reuters.

Exceptional fiscal expenditures, by their own terms, are intended to replace shortfalls in aggregate demand. And recent extraordinary monetary policy actions are intended to lower risk-free rates and grow balance sheet capacity to help offset the pullback by private financial intermediaries. But financial markets may extract penalty pricing if fiscal authorities are unable to demonstrate a credible return to sustainable budgets. And they are unlikely to look kindly on monetary authorities unless they decidedly and unambiguously chart their own independent paths. The Federal Reserve should not--and will not--compromise another kind of stability--price stability--to help achieve other government policy objectives.

We need to draw a bright line once again between monetary policy and fiscal policy. The recent crisis has muddied that separation considerably and we must restore it. The Fed must not be seen by the public or the Congress as a piggy bank that can substitute for difficult fiscal policy decisions.

When a nation's treasury or finance ministry and its central bank work too closely together, there is a clear risk that the government's spending will end up being financed by the central bank's power to create money and that the public will become confused as to their respective roles...Independence is essential to central bank success and the Federal Reserve's current governance and decentralized structure has been an important contributor to ensuring that independence.

We have been very careful to calibrate our actions so as to accommodate the needs of credit markets and the economy, not political imperatives. We are well aware that some of our balance sheet additions, designed to pull markets and the economy from the edge, have raised a few eyebrows (like the $1.25 trillion in mortgage-backed securities we have pledged to purchase if necessary—although it has unquestionably driven mortgage rates to historic lows). And while it is not unusual for the System Open Market Account to buy Treasuries along the yield curve, the FOMC’s decision to purchase $300 billion in U.S. Treasuries—a decision made to improve the tone in the private credit markets—has been viewed by some as skating a little too close to the edge of political accommodation.

I can tell you that the FOMC is well aware of the doubts being voiced about its intentions. I can also tell you that nobody I know on the committee wants to maintain our current posture for any longer and to any greater degree than is minimally necessary to restore the efficacy of the credit markets and buttress economic recovery without inflationary consequences. Indeed, as I speak, we are studying ways to unwind our balance sheet in a timely way.
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[T]here are concerns that the Federal Reserve will be politicized. For example, some have called for increased congressional involvement in the selection of Federal Reserve policymakers and a reduced role for member banks. I trust that the Congress will resist this initiative and not upset the careful federation that has for so long balanced the interests of Main Street with those of Washington, just as we at the Federal Reserve must resist the urgings of some to accommodate the short-term financing needs of the Treasury.

Finally, as we revisit our central bank lending policies, we must not overlook the importance of central bank independence. The record shows that central bank independence leads to more effective monetary policy. That principle is vital to our lending policy as well.

To protect that independence, central bank lending policies should avoid straying into the realm of allocating credit across firms or sectors of the economy, which is best left to the marketplace. The perception that the Federal Reserve is in the business of allocating credit is sure to generate public pressures on the Fed from all sorts of interest groups. In my view, if the government must intervene in allocating credit, it should be the responsibility of the fiscal authority rather than the central bank. This division of labor, so to speak, will better ensure the Fed's ability and credibility to maintain price stability and promote economic growth.

I just want to note, though, that to the extent that we improve the social safety net in this country, which is important on its own, I think we also give more flexibility to monetary policy, because the Federal Reserve would then be freer in times when it felt it was necessary for other reasons to slow down the economy in the knowledge that this would not have, as it has today, a disproportionately negative effect on a lot of people who are more vulnerable economically.

"The Fed will want to be as low-key and invisible as possible and that means the Fed will not want to change the funds rate ahead of the election," said William Poole, who retired in March as president of the St. Louis Federal Reserve Bank after a decade on the Fed's rate-setting committee.

"But I believe that if there is a compelling case, the Fed will do so," he said. "I do not believe the Fed will abstain from necessary policy action because of the election."

Monetary policy decisions are made without the direct input or the immediate approval of the other branches of government. This helps keep monetary policy independent of political pressures and influence. Nevertheless, we are independent within the government - not of the government. Ultimately, we are accountable to Congress for achieving two objectives: price stability and maximum sustainable economic growth.

"I can tell you, I've not said this publicly before, Alan Greenspan disappointed me. I reappointed him and he disappointed me in the way that they begrudgingly lowered the rates. I think if the interest rates had been lowered more dramatically, that I would have been reelected president."

As reported by Marketplace.