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Federal Reserve Independence in the Aftermath of the Financial Crisis
Report

Federal Reserve Independence in the Aftermath of the Financial Crisis

Should We Be Worried?

Hutchins Center on Fiscal & Monetary Policy at Brookings and Donald Kohn
Brookings Institution Press, 2014
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Scientific

Recommendation

When a Texas hopeful for the 2012 Republican nomination for US president said of Ben Bernanke, Federal Reserve chairman, “We would treat him pretty ugly down in Texas,” a shock rippled through central banking circles. Threats of violence by mainstream political candidates against the central bank head don’t happen every day, but they do signal a partisan animus against the Fed’s continuing independence. Donald Kohn, former Fed vice chairman, argues that the US central bank’s freedom to set policy and its accountability to the American people are not mutually exclusive. While always politically neutral, getAbstract recommends this thoughtful summary of the Fed’s recent history and Kohn’s cogent argument for the Fed’s “instrument independence” to Fed watchers of all stripes.

Summary

As the most serious financial challenge since the Great Depression battered the seeming success of the Great Moderation, the Federal Reserve, like many other central banks, implemented novel policies to prevent a 1930s-style crisis. Many such policies – adding riskier assets to its balance sheet to bring down long-term rates, intervening in the mortgage market and making loans to nonbanks – would have been inconceivable a few years earlier. But while these actions lessened the severity of the crisis, they provoked protests from politicians and dampened Fed support among Americans. Some...

About the Authors

Economist Donald Kohn is a former vice chairman of the Board of Governors of the Federal Reserve System.

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