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Federal Reserve Indepence Essay

1742 words - 7 pages

1. What gives the Fed its independence?
The Federal Reserve System is an independent entity within the government. It operates autonomously within a framework of economic and financial policy objectives established by the government. Although its decisions are not ratified by the executive branch, it is subject to congressional oversight. For instance, its Chairman periodically reports to Congress. Its structure was designed by Congress to provide a broad perspective on economic activity in all parts of the country and to create a balance between public and private control. Although the Reserve Banks were created by legislative act, they receive no budget appropriations from Congress. Each ...view middle of the document...

The bill, which has 28 co-sponsors Brady said, would require support from the House Financial Services Committee, which has oversight authority over the Fed. “The fact that the Fed can, if it chooses, intervene without limit into any credit market -- not only mortgage backed securities but also securities backed by automobile loans, or even student loans -- raises more uncertainty, and of course raises questions about why an independent agency of government should have such power,” Taylor said in prepared testimony. (Bloomberg News March 27 2012)
2009- Dodd Frank- Under the administration's plan, the Fed would continue to regulate some banks, in part to inform its monetary policy. The FDIC similarly would continue to regulate banks, in part to inform its responsibility to clean up the ones that fail. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has said he favors the administration's approach. But Dodd's bill would remove that work from both agencies, though they would retain access to information. It would bulldoze the existing regulatory establishment, stripping power from agencies including the Federal Reserve and the Federal Deposit Insurance Corp., and erect in its place a triumvirate of new regulators with sweeping, unprecedented powers.
Nov 2009- Mr. Paul’s bill would require the Government Accountability Office, an arm of the Congress, to complete a wide-ranging assessment of the Fed’s financial operations by the end of 2010. The audit would delve into bailouts of individual firms, short-term loans to banks, currency swaps with foreign central banks and the Fed’s effort to prop up mortgage lending by purchasing $1.25 trillion in mortgage-related securities.
4. Difference of independence of Fed Board of Governors
The 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. So, members of the Board of Governors are appointed for staggered 14-year terms and the Chairman of the Board is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board. The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the Federal Reserve System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
5. What are the arguments that the Fed is truly independent versus the arguments that it is not truly independent?
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