Central Bank Support Coalitions
38 Pages Posted: 11 Oct 2014
Date Written: September 26, 2014
The Federal Reserve's ideological "support coalition" in Congress is not constant but changes over time with the mandate that it is pursuing. When the Federal Reserve (Fed) is fighting inflation, the Right supports it and the Left attacks it. But when the Fed's primary focus shifts to recession and high unemployment, the coalitions reverse and the Left supports the Fed while the Right attacks it. A second complementary influence involves the Fed's foreign operations. I argue that the Fed's massive support for foreign central banks during the recent crisis further alienated the Right for "anti-globalization" reasons, compounding the ideological effect arising from the Fed's focus on unemployment. I evaluate these arguments in two ways. First, I analyze all congressional proposals since 1973 to increase oversight of the Fed to see if opponents (identified as proposal sponsors and co-sponsors), move from Left to Right as the Fed moves from fighting inflation to fighting unemployment. The results strongly support this conditional conjecture. Second, I examine roll-call voting on Ron Paul’s 2012 "Audit the Fed" bill, finding that the Fed's congressional support coalition is now solidly left-wing, with attacks emanating from the Right. This is due to a combination of monetary conditions – reducing unemployment is the Fed's current priority – and the Right's antipathy to the Fed's global activities.
Keywords: Central Bank Independence (CBI), Politics of Monetary Policy, Federal Reserve
JEL Classification: E5, E58, F33
Suggested Citation: Suggested Citation