Fed Independence is Hurt by Poor Performance, Not Poor Legislative Outreach

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Jon Hilsenrath at the WSJ postulates that one reason the Fed is having an unusually hard time having its way with Congress is that a lot of people have left the Fed’s congressional relations office recently, leaving them a bit green and understaffed. Annie Lowrey calls around on the Hill and finds little support for this idea: “Hill staffers described the Fed’s outreach as ‘excellent,’ ‘effective’ and ‘really good’ — noting that Fed staffers up to and including Chairman Ben Bernanke have personally worked with members of Congress throughout the financial regulatory reform process. Even offices highly critical of the Fed said they had no trouble getting questions answered or phone calls returned.”

I think common sense holds that the Fed is losing some of its independence because the world is mired in a giant recession. When Paul Volcker was seen as having licked inflation, and then Alan Greenspan was seen as having delivered a “Great Moderation” spanning two decades, then politicians hesitated to challenge Fed leaders. With unemployment at 10 percent, people get antsy and start giving the Fed a hard time.

Personally, I welcome the idea of more attention to the importance of the Fed and its activities, but I’m not hearing a ton of constructive ideas from the Hill. The idea of “auditing” the Fed seems largely besides the point, like if your big worry was that John Roberts might be embezzling office supplies rather than issuing bad rulings.