Should-Read: Mark Thoma: Federal Reserve Independence

Should-Read: Mark Thoma: Federal Reserve Independence: “After the FOMC cut interest rates to almost nil during the Great Recession, the committee took advantage of its independence to boldly go where no Fed had gone before…

…With its “quantitative easing” program, the Fed purchased vast quantities of securities other than Treasury bonds, flooding banks with loanable deposits. President Obama respected the Fed’s independence, probably because it was pursuing policies that his advisers found appealing in light of their own frustrations with being unable to use more fiscal stimulus to speed the recovery. But the reaction from Republicans in Congress was a familiar one: threats to intervene.

This was partly inspired by genuine fears that the magnitude of the quantitative easing initiative would unleash inflation, and partly by a partisan inclination to attack an institution seen as allied with the Obama administration. It’s hard to know the extent to which pressure from Congress constrained the Fed’s actions. But the threats to audit the Fed, monitor policy decisions and strip it of its regulatory powers, combined with the public’s anger at policies that served the interests of Wall Street, certainly motivated Bernanke to mount an unusually public campaign defending the Fed’s independence…