Journal Article

Independence + accountability: why the Fed is a well-designed central bank

Abstract: In 1913, Congress purposefully created the Federal Reserve as an independent central bank, which created a fundamental tension: how to ensure the Fed remains accountable to the electorate without losing its independence. Over the years, there have been changes in the Fed?s structure to improve its independence, credibility, accountability, and transparency. These changes have led to a better institutional design that makes U.S. policy credible and based on sound economic reasoning, as opposed to politics. In times of financial and economic crisis, there is an understandable tendency to reexamine the structure of the Federal Reserve System. A central bank?s independence, however, is the key tool to ensure a government will not misuse monetary policy for short-term political reasons.

Keywords: Federal Reserve System - Independence; Banks and banking, Central; Federal Reserve System; Monetary policy - United States;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 2011

Volume: 93

Issue: Sep

Pages: 293-302