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A top Federal Reserve official warned that intervention in credit markets could undermine central bank independence, and called for the imposition of “credible limits” on such activism. In remarks prepared for delivery to Stanford University’s Hoover Institution, Richmond Fed President Jeffrey Lacker said “Entanglement in the distributional politics of credit allocation inevitably threatens the delicate equilibrium underlying central bank independence, which has been so essential to monetary stability.” To drive home his point, Lacker pointed to the 1970s, when the Fed not only allowed inflation to get out of hand as it focused on bringing down unemployment.

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