Congressional Attention to Monetary Policy over Time

The Federal Reserve describes itself as "an independent government agency but also one that is ultimately accountable to the public and the Congress...Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long-run goals and do not become subject to political pressures that could lead to undesirable outcomes."

The independence of the Fed is by no means fixed or guaranteed. Rather, the Fed continually attempts to defend its independence. As Dincer and Eichengreen (2014) note, the movement of central banks toward greater transparency can be understood in part as an effort to protect independence by demonstrating accountability outside of the electoral process. They explain that "calls to audit the Federal Reserve have intensified as the central bank has come to rely more extensively on unconventional policies and expanded the range of its interventions in securities markets. The FOMC’s decision to make more information publicly available can thus be understood as an effort to reconcile the increased complexity of its operations with the desire to maintain and defend its independence."

The Fed derives its authority from Congress, and Congress can alter the Fed's responsibilities (and decrease its independence) by statute. Since the financial crisis, congressional calls for more oversight of the Fed or for less discretion by monetary policymakers abound. In National Affairs, Steve Stein writes:

"The independence of the Federal Reserve may well be more threatened in the coming years than at any time in the 100-year history of America's central bank. That independence could prove impossible to protect as long as the Fed continues to exchange its role as a defender of monetary stability for a new role as the ultimate overseer of the financial system. That new role is an inherently political one, and the Fed cannot expect to be permitted to perform it without interference from the democratically elected institutions of our political system."

It is difficult to measure the level of "threat" to Federal Reserve independence, but some indicators of Congressional attention to monetary policy are available. The Comparative Agendas Project tracks data on policy agendas, including hearings and bills, across several countries. Congress may use monetary policy-related hearings or bills as a form of signal to the Fed--an indirect form of political pressure or warning.

The figure below shows the number of bills in the U.S. Congress related to interest rates or monetary policy over time. Unsurprisingly, the 1970s and early 80s saw the largest number of such bills. The 1973-74 Congress considered 101 bills about interest rates and 55 about monetary policy. But the 2009-10 and 2011-12 Congress considered just 15 and 22 bills about monetary policy, respectively, which is low by historical standards.

Created at http://www.comparativeagendas.net/

The next graph, below, shows the number of Congressional hearings on interest rates and monetary policy. These also peaked around the late 1970s. Since then, however, while hearings on interest rates have dwindled, hearings on monetary policy remain frequent--typically 10-20 per year. There is a mild upward trend from 2005 to 2012. Still, by neither metric of bills nor hearings is the Fed facing an unprecedented era of Congressional meddling.

Created at http://www.comparativeagendas.net/