Central Bank Undersight: Assessing the Fed’s Accountability to Congress

Abstract: As America’s central bank, the Federal Reserve is unique among independent agencies in exercising powers that the Constitution granted to the legislative branch, namely, regulating the value of money and borrowing funds directly from the public. In delegating these powers, Congress designed the Fed to ensure that its monetary policy decisions would be insulated from political interference. Furthermore, Congress has a constitutional obligation to maintain effective oversight of the Fed’s exercise of these duties. Over the past fifteen years, however, the scope and complexity of monetary policy has outpaced Congress’s ability to monitor these policies through existing mechanisms of oversight. Consequently, this congressional “undersight” is undermining the delicate balance between the Fed’s independence and public accountability. For example, internal shifts in the Fed’s governance and power dynamics have led to the disappearance of dissents on monetary policy decisions, thereby hampering legislators’ ability to discern the range of views that have informed those decisions. Moreover, in conducting its latest round of securities purchases (“QE4”) during 2020-22, the Fed did not provide legislators with cost-benefit analysis or risk assessments at any stage of the program. Indeed, QE4 is now likely to cost taxpayers more than $1 trillion, but its efficacy has still not been scrutinized by any external reviews. To restore effective oversight of the Fed’s monetary policymaking, legislators may wish to consider potential approaches such as strengthened reporting requirements, secured access to sensitive information, and external reviews by congressional watchdogs.

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