The Fed's Chair Background and the Federal Reserve Independence

Date01 January 2019
AuthorDamir Tokic
Published date01 January 2019
The Feds Chair Background
and the Federal Reserve
Damir Tokic
The Federal Reserve, like
many other central banks, is an
independent government agency
but also one that is ultimately
accountable to the public and
the Congress. The Congress
established maximum employ-
ment and stable prices as the key
macroeconomic objectives for the
Federal Reserve in its conduct of
monetary policy. The Congress
also structured the Federal
Reserve to ensure that its mone-
tary policy decisions focus on
achieving these long-run goals
political pressures that could lead
to undesirable outcomes. So,
members of the Board of Gover-
nors are appointed for staggered
14-year terms and the Board
chair is appointed for a four-year
term. Elected ofcials and mem-
bers of the Administration are not
Federal Reserve webpage:
Bernanke (2011) states that
the Federal Reserves
operational independence is
critical, as it allows the FOMC
to make monetary policy deci-
sions based solely on the
longer-term needs of the
economy, not in response to
short-term political pressures.
Statutory, the Federal Reserve
is an independent government
agency with the dual mandate
to ensure stable prices and full
employment. Yet, the literature
shows that the Fed has been
periodically succumbing to
political inuence. For exam-
ple, Smith Daniel and Boettke
(2015) study an episodic history
of modern Fed independence,
and describe many factual epi-
sodes of such political interfer-
ences from 1951 to 2014.
Although Bernanke (2010)
states that the effective degree
of independence at the Fed has
gradually increased over time,
Boettke and Smith (2014) still
nd evidence of compromised
modern-day Fed independence.
Consequently, due to political
pressures, the Fed has a history
of policy errors, which have
produced serious longer-term
market instabilities. For exam-
ple, Meltzer (2010, 2012) states
that the Great Ination of
1970s occurred because of the
Feds inability to ensure price
stability in face of the political
pressures to nance large bud-
get decits during 1960s and
1970s. Thus, it is important to
further discuss the issue of cen-
tral bank independence.
This article discusses the
link between the Feds Chair
background and the Feds
independence, which has not
been deeply discussed in the
prior literature. The motiva-
tional factor for this viewpoint
discussion is the fact that the
President appoints the Chair of
the Federal Open Market
Committee (FOMC), who is
also known as the Fed Chair.
The FOMC is the decision
making body that conducts the
U.S. monetary policy, and it
consists of 12 members, ve
voting Presidents of the
© 2019 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22374 5

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