Fed independence has come under pressure recently after the onset of the Fed’s QE2 program. New leadership in the House of Representatives might lead to stripping of some authorities from the Federal Reserve. President Obama has pledged to keep out of the Fed’s affairs, largely leaving monetary policy to the central bank. Recently in Japan, similar calls for reduced BoJ independence have been made. Even in the U.K. the Bank of England’s independence has been questioned. There have also been calls by some politicians to remove the Fed’s “dual mandate” and replace them with a strict inflation targeting policy.
- What do you believe would happen to the Fed if they were forced to explain their monetary policy actions in more detail. This is another way of saying that some politicians want to “audit the Fed.”
- Do you believe that pressure on central bank independence will alleviate if and when economic conditions improve? Or do you believe that the central bankers will take much of the blame for the build up and collapse in the recent recession.
- Do you believe stripping the Fed of its ‘dual mandate’ would result in a more stable economy? Or do you believe taking discretion away from the central bank would create more chaos.
Keep in mind here that the Fed itself is not even 100 years old, and that fiat money which is controlled by a central bank is really still very young. Look back at previous calls to end the Fed or strip its powers. Andrew Jackson spent many years fighting the idea of central banking eventually eliminating the shell of a central bank that existed at the time.
- Do you think that the “independent central bank” is in danger of disappearing?
- Should rules be set to manage monetary policy? If so, what or who would help out in times of crisis if you even think anyone should intervene. You might consider the case of Iceland to examine the aftermath of not bailing out the banking system as many other countries have done.