It may well be much too late but apparently there are a few adults left at the Fed who are beginning to worry about independence.

The evidence is hit and miss but Bloomberg noted today that the minutes of the last two meetings indicate a continuing discussion over buying treasuries yet no announced policy thereto, Bernankes omission of that strategy in his prepared remarks today before the House committee even though he had specifically included that strategy at his last appearance and some noise from the regional Fed presidents about independence.

Yesterday, Richard Fisher, President of the Dallas Fed, raised the issue of independence and had this to say about buying treasuries:

The Federal Reserve must, of course, be very careful to avoid the perception that it is monetizing the explosion of fiscal deficits, as this would undermine confidence in our independence and raise serious doubts about our long-term commitment to price stability.

“This does not mean, however, that we should refrain from buying Treasuries in this time of crisis,” Fisher said.

Bernanke’s Fed has probably gone beyond the point at which it could have held up its hands and reminded everyone that in the end they don’t answer to Congress or the administration. The moment he appeared at Paulson’s side pleading with Congress for the original TARP money, the die was cast. To be fair, he probably didn’t have much choice and I am willing to assume that the situation was dire enough to warrant the departure from custom. At that point, however, the flexibility to follow an independent course was lost.

The problem is that each time the Fed appears to be functioning as an arm of the Treasury, it loses more of its aura. Judging by commentary I read and hear, it’s almost a foregone conclusion that if called upon to use its balance sheet for whatever reason that it will stand up and salute.

There will come a time when the direction of the economy changes and the challenges shift from a need for massive government infusions of capital to mopping up the liquidity that’s being created. It’s likely that the Fed will be called upon to begin the inflation fight at precisely the wrong time from a politicians point of view. In effect, throwing a bit of water on a fire that’s just starting to burn. Then will be the time when the rubber, as they say, meets the road. The political pressure to not stop the party too soon will be intense and it may not be as easy as Bernanke thinks to get out of bed he’s currently sharing.

more: here and here