What does it mean that the Federal Reserve is "independent within the government"? (2024)

FAQs

What does it mean that the Federal Reserve is "independent within the government"? ›

The Fed is independent in the sense that monetary policy and related decisions are made autonomously and are not subject to approval by the federal government.

Under the law, the Federal Reserve was made accountable to Congress but also was specifically designed to carry out its responsibilities without interference or control from the vested interests inherent in electoral politics, fiscal policymaking, and private banking.

The Federal Reserve Banks are not a part of the federal government, but they exist because of an act of Congress. Their purpose is to serve the public. So is the Fed private or public? The answer is both.

The Fed is politically independent since the monetary decisions of the the Fed do not have to be ratified by the President or anyone in the Executive Branch. The Fed does not receive funding from Congress and the Board of Governors serve 14-year terms, which do not coincide with presidential terms.

The U.S. Congress determines the goals of monetary policy (maximum employment, price stability, and moderate long-term interest rates), but it has given the Federal Reserve independence to achieve these goals. Along with that independence, the Federal Reserve is accountable to Congress for meeting its goals.

Experience around the world has also shown that countries with independent central banks that are able to make decisions free from political influence have better economic outcomes for their citizens.

Although the Fed Board of Governors moved into their own building in 1937, their independence in monetary policy wasn't established until 1951.

The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.

Federal Reserve Banks' stock is owned by banks, never by individuals. Federal law requires national banks to be members of the Federal Reserve System and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.

The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate.

Why does the US need the Federal Reserve? ›

The Federal Reserve sets U.S. monetary policy to promote maximum employment and stable prices in the U.S. economy.

Critics have also raised concerns about the Fed's role in fractional reserve banking, its contribution to economic cycles, and its transparency. The Fed has been accused of causing economic downturns, including the 2007-2008 financial crisis, and of being influenced by private interests.

The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.

If it was abolished it would collapse the entire global capitalist system. Capitalism needs the fed to control the chaos of the system. Then we go back to the situation before the Federal Reserve was adopted - Wall Street Banks become the de facto central bank of the United States.

The Fed is more independent because its substantial revenue from securities and discount loans allows it to control its own budget. The primary tool that the Congress uses to exercise some control is the threat that it will acquire greater control over the Fed's finances and budget.

Some people argue that the Federal Reserve is unconstitutional because they believe the Constitution does not grant the federal government the authority to create a central banking system.

Answer and Explanation: c. monetary policy is too important and too technical to be determined in the political arena. Monetary policy is an essential tool to achieve sustainable economic growth and stable prices.

The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations.

While the Fed is nominally independent (i.e., it is not an agency of the federal executive departments nor the Executive Office of the President), it is nonetheless subject to political pressure. The appointment process provides one channel through which monetary policy might be influenced.