New Economic Perspectives

By L. Randall Wray

Coda: Is the Fed Independent of Influence?

In my two part series (here and here), I examined conventional views of (mostly) economists on the Fed’s supposed independence. What they focus on is the Fed’s independence from our elected representatives and as well on operational independence of the Treasury. The reason why they believe this is important is because the Fed is supposed to protect us—we can identify us as “money users”—from the danger that the “government” (Congress and Treasury), our “money issuers”, might conspire to degrade our currency by having the Fed “print money” to finance a profligate government. These “Weimar Worriers” are just certain that if a cabal of central bank, treasury and congress had their way, we’d be off and running to hyperinflation. Hence, thank god that our central bank is independent! Any meddling by Congress (or the Treasury) in the affairs of monetary policy making would be the final death knell for our Dollar.

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By L. Randall Wray

Last time we took a historical perspective on supposed Fed independence. In this blog we look at the myth of Fed independence from its creator, the Congress and from the Treasury.

Independent from Congress: Discretion in Selecting Tools

The strongest case for Fed independence would be in its discretion to choose the tools and targets to pursue Congressional mandates. Congress has shown little interest in interfering with the details of monetary policy implementation, preferring only to mandate the ultimate goals. The period from 1979 to the mid 1980s was an exception as Congress had become enamored with Milton Friedman’s monetarist focus on growth of the money supply. Even after the Fed had dropped money growth targets from serious consideration, Congress still wanted the Fed to provide them. However, for the most part, Congress leaves these details to the Fed.

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