The Constant Assault on the Federal Reserve

There always has been some sentiment against the Federal Reserve. The very idea of having a quasi-government agency, the head of which is appointed by the president, an agency that is independent of congressional influence, is sometimes suspect. Congress in the past, especially when dominated by the Democrat party, has never been happy with the Fed.

The legitimacy of the 12 regional Fed banks has also been questioned. They are overseen by private-sector boards of directors, composed mainly of commercial bankers. That never sits well with the Left.

Independent-minded economists, however, have always come to the defense of the Federal Reserve. The idea has always been, at least in the past, to keep the Federal Reserve as free from politics as possible.

Despite the logic for the Fed’s practical presence, Congress always has wanted to impose some influence. It has to an extent. Since 1978 the Fed has had to enforce the Full Employment and Balanced Growth Act, otherwise known as Humphrey-Hawkins. And that conflicts with the Fed’s Number One stated currency/inflation activity.

That’s because the Humphrey-Hawkins Full Employment Act enforcement creates an inflating bias. Certainly not one of dollar stability. So there is always a conflict of interest. Incidentally, this is too often overlooked by financial media comment.

Congress would want the Government Accountability Office , their investigative arm, to audit Fed monetary policy. And the Obama administration constantly wants to add fresh responsibilities which are bound to sap the Fed’s objectivity and main focus.