The Fed Under Fire

The US Federal Reserve System has always been a work in progress, and now it is being subjected to the most severe attack by members of Congress since the Great Depression. But it is far from clear that the right response to the latest crisis is an abrupt turn away from the reforms adopted back then.

CAMBRIDGE – The Federal Reserve is under attack. Bills subjecting the United States' central bank to “auditing" by the Government Accountability Office are likely to be passed by both houses of Congress. Legislation that would tie how the Fed sets interest rates to a predetermined formula is also being considered.

Anyone unaware of the incoming fire only had to listen to the grilling Fed Chair Janet Yellen received recently on Capitol Hill. Members of Congress criticized Yellen for meeting privately with the president and treasury secretary, and denounced her for weighing in on issues tangential to monetary policy.

Still others, like Richard Fisher, the outgoing president of the Dallas Fed, have inveighed against the special role of the Federal Reserve Bank of New York. Reflecting the New York Fed's heavy regulatory responsibilities, owing to its proximity to the seat of finance, its president has a permanent seat on the Federal Open Market Committee, the body that sets the Fed's benchmark interest rate. This, its detractors warn, privileges Wall Street in the operation of the Federal Reserve System.

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