Congress and the Federal Reserve: Independence and accountability. Sarah Binder, George Washington University, Brookings Institution; Mark Spindel, Potomac River Capital, LLC. Forthcoming in Jenkins, Jeffrey and Eric Patashnik, Eds. Congress and Policy Making in the 21st Century (Cambridge University Press). Draft February 2015.

“The recent global financial crisis reveals limits of central bank independence. In the U.S., Europe, and Japan, politicians have replaced central bank governors, revamped their lending powers, and imposed greater transparency. Such legislative action challenges the assumed importance of central bank autonomy. In this chapter, we focus on the U.S. Federal Reserve, exploring the tradeoff between central bank independence and democratic accountability. We offer a framework for understanding how lawmakers influence monetary policy given expectations (even within the limits) of central bank independence, and track congressional attention to the Fed in the postwar era. We pay special attention to Congress’s reactions to the Fed in the current era of partisan polarization, a period in which the Fed first lowered interest rates to zero and then, in an effort to ease monetary policy further, adopted a series of unconventional lending and asset purchase programs. We conclude that Congress’s reactions to the Fed’s unconventional toolkit—especially at the zero bound–helped to bring democratic values to bear on the making of monetary policy.”