Central Bank Independence and the Federal Reserve's New Operating Regime

Abstract

The Federal Reserve is exposed to a greater degree of political influence under its new operating regime. We survey the relevant literature and describe the Fed's new operating regime. Then we explain how the regime change reduced de facto central bank independence. In brief, the regime change increased the appointment power of the President and improved the bargaining power of Congress. We offer some suggestions for bolstering de facto independence at the Fed.

Keywords: Central Bank, Central Bank Independence, Federal Reserve, Monetary Policy, Political Economy

JEL Classification: H11, E42, E52, E58, P16