CONFUSION is the watchword on Capitol Hill, at least where the fiscal stimulus package is concerned. Unfortunately, matters aren't much clearer at the Federal Reserve. As Tim Duy notes at Mark Thoma's blog, it is unclear whether the economy is simply grazing an economic downturn and inflation therefore looms as a serious threat, or if a more substantial contraction is in the cards and deflation is a possibility. The Cleveland Fed's analysis of federal funds futures contracts reveals the market is expecting interest rate cuts of anywhere from 25 to 100 basis points by the conclusion of the March Fed meeting.

Mr Duy adds some interesting thoughts about the nature of the international adjustment in progress, but I was most interested to read his comments on the political machinations affecting the Federal Reserve's behaviour at the moment:

Consider also Senator Dodd’s meeting today with Fed Chairman Ben Bernanke, in which Dodd reached a certain understanding: ''The chairman is committed to using the tools available,'' said Dodd, a Connecticut Democrat. ''It's been evidenced already, and I'm confident he'll continue.'' Giving Bernanke the benefit of the doubt, he likely didn’t commit to additional easing. But Dodd is certainly leveraging market expectations to set the path toward additional easing. Also note that Dodd is holding up three Fed governor nominees, including the current Governor Randall Krozner. Senator Reid is also drawing a line in the sand on nominees. Indeed, I am surprised that we currently hear so little commentary about the possible erosion of Fed independence...

Mr Duy notes that the central bank may have invited such activity by failing to embrace a greater regulatory role during the latter stages of the housing bubble, when the extent of the shakiness in mortgage markets became clear. The Fed has also contributed to the erosion of the wall between itself and the political world by injecting itself into debates over fiscal policy.

Despite these failures, central bank independence remains vital in maintaining a reasonable monetary policy and price stability. This is something a number of prominent leaders and journalists seem to have lately forgotten. A year ago, George Will complained in the Washington Post about democratic lawmakers seeking rate cuts from a stubborn Fed. (In retrospect, those lawmakers may have had a point). Following Mr Bernanke's surprise 75 basis point cut two weeks ago, America's newspapers were filled with reprimands for the chairman. Many wondered whether Mr Bernanke's seeming commitment to high equity prices didn't justify a stronger oversight role for the Congress. And the current edition of The New Republic contains a piece by the magazine's editors that wistfully remembers a time when President Lyndon Johnson could browbeat and physically threaten a Fed chairman into monetary easing.

But that same chairman, William McChesney Martin, earned the ire of Richard Nixon, who blamed the Fed's policies for his defeat in the presidential election of 1960. Had the central bank not enjoyed independence during his later presidency, there can be little question that Mr Nixon would have used his authority to obtain favourable shifts in policy from the central bank. Every president would, and practically no president would find it in his interest to make monetary policy tighter.

No central banker is perfect. They lack perfect foresight, perfect models, and in many cases, perfect motives. This state of affairs is preferrable to one where political leaders, whose motives are clear and consistent, can force, in words or actions, a Fed chairman to adopt a certain policy. That way lies inflation.