Mona Ali
In a quotidian sense, central bank independence refers to the ability of central bankers to make decisions regarding monetary policy without political interference. As Jerome Powell, chair of the Federal Reserve Board of Governors, likes to emphasize: Fed decisions are solely “data-driven.” Independence implies impartiality. A couple years ago, a member of the Fed’s board of governors earnestly explained to an audience of central banking experts that the Fed’s apolitical stance meant that “we don’t talk about politics; we don’t discuss politics.” The same Fed official then went on to emphasize the Fed’s “complete freedom of operation” in conducting monetary policy.
The first attribute (independence from politics) supposedly legitimizes the second (immense power). The Fed isn’t a democratic institution. It is an independent agency. Its board members aren’t elected officials and, in that sense, not accountable to the public. Governor Cook and her colleagues are presidential appointees confirmed by the US Senate. Their terms of service — fourteen years — are shorter only than those of federal and Supreme Court judges.
The Federal Reserve Act describes that the mandate of the board and the Federal Open Market Committee (FOMC, the body that decides the federal funds rate) is to make decisions to uphold the “long-run growth” of money and credit in ways that are aligned with the “long-run potential” of the macroeconomy — to advance maximum employment, price stability, and “moderate long-term interest rates.” The repetition of the phrase “long-run” may seem curious but in emphasizing the long-run horizon, Fed policymakers aim to send the message that they are not swayed by the electoral cycle.
But the Fed isn’t at all indifferent to [John Maynard] Keynes’s wisdom that, in the long term, we’re all…
Auteur: Mona Ali
