Federal Reserve Governor Makes Case for Independence
For years since its founding in 1913, the Federal Reserve Board operated out of sight from most Americans. The high priests of high finance practiced their green arts in obscurity while most people knew little or nothing of their existence.
Fast forward to 2024 and the situation is much different. In the age of 24/7 news cycles and instant communications via the world wide web, the Fed no longer operates shrouded in mystery, and, like all public entities, it is not without its supporters and critics.
The Fed was created as a response to several financial panics in the early 20th century in an effort to stabilize the nation’s banking system and strike a balance between the interests of private financial institutions and the public. And for many years it played that role without fanfare, issuing its monetary policy decisions from its ivory tower headquarters in the Marriner S. Eccles Federal Reserve Building in Washington, D.C.
In recent years the central bank has worked to lift the veil of secrecy surrounding its work in favor of more transparency, with the release of more in-depth media release and periodic press conferences following meetings of its Federal Open Market Committee. But as the political winds shift, it appears – at least to some – that may not be enough.
As concern about the state of the economy in general – and inflation in particular – mounts, the ability of the Fed to remain above the partisan fray is in question, leading at least one member of the Board of Governors to reassert the necessity for an independent central bank.
In a recent speech, Fed Gov. Adriana Kugler laid out the arguments for Federal Reserve Board independence and what it means for the U.S. economy.
“An independent central bank is one that can carry out monetary policy insulated from pressures arising from other parts of government or elsewhere,” she said. “Central banks significantly influence prices, interest rates, employment and income in the economy, so it is natural that sometimes there would be differing views on their decisions.”
Kugler said the Fed’s ability to balance populist sentiment with sound financial decision-making is a key to a stable economy, where policy choices are focused on longer-term economic health rather than short-term political gain.
“If elected officials are responsible for monetary policy decisions, the typical altercation in control of government between different parties may lead to different preferences in the tradeoff between employment and inflation, destabilizing prices and the economy in the long term,” she said. “Central bank independence is fundamental to achieving good policy and good economic outcomes.”
For more than a century the Fed has carried out its dual mandate of price stability and maximum employment without fear or favor. As the global economy becomes ever more intertwined and public expectations of a better financial future increase, central bank independence both here and abroad is more important than ever.
The question is, will it stay that way?
