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Federal Reserve Independence in the Aftermath of the Financial Crisis
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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.

Take-Aways

  • The Federal Reserve’s unconventional monetary policies helped alleviate the impact of the 2008 financial crisis and its aftermath on the US economy.
  • Politicians criticize Fed policies and practices – including buying mortgage securities and lending to nonbanks – and challenge its independence.
  • While the Fed is accountable to Congress for its results, its “instrument independence” in achieving its targets is critical to its credibility and effectiveness.

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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