Question

The Federal Reserve was established in 1913 and is, therefore, a “creature of Congress.” The President of the United States nominates members of the Board of Governors of the Federal Reserve, subject to confirmation by the Senate. However, the Federal Reserve is basically free to pursue monetary policy independent of Congress or the President. Should the Federal Reserve remain independent of the President and Congress or should the President and Congress control monetary policy? Why? (200 word minimum).

Answer 1

Federal Reserve should remain independent of the President and Congress and should control the monetary policy on its own because an independent Federal Reserve insulate the decision of Fed from short-term political pressures which would have happened if the control is with the Congress. Without a degree of autonomy, the Fed could be influenced by election-focused politicians into enacting an excessively expansionary monetary policy to lower unemployment in the short-term. This could lead to high inflation and fail to control unemployment over the long-term.

Fed receives no funding from Congress, and the members of the Board of Governors, who are appointed. Fed Reserve if independent will better address long-term economic objectives compared to if President or Congress controls it. Independence also make it easier to execute policies that are politically unpopular but serve a greater public interest.

The level of independence given to the Federal Reserve gives them power to act on their expertise rather than their political beliefs. It is true that there needs to be some level of oversight. However, if they were tied in too closely with the government, there would be a lot of potential damage. The current political gridlock has only reaffirmed the reason why it is necessary to give the Fed some autonomy.