Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
How Congress Designed the Federal Reserve to Be Independent of Presidential Control
Journal of Economic Perspectives
(pp. 221–38)
(Complimentary)
Abstract
Conventional wisdom traces the origins of the Federal Reserve's independence to the 1951 Treasury-Fed Accord. That rendition of history is inaccurate. The principal source of the Fed's monetary-policy independence is the Banking Act of 1935, which created the Fed's modern leadership structure and placed monetary-policy decisions beyond Presidential control. Congressional intent is clear in this case because the initial draft of the bill vested control of monetary policy with the President. After extensive debate, Congress amended the legislation and crafted the institutional features that enshrine the Fed's independence. The central role of the Banking Act of 1935 suggests that only an act of Congress or a Supreme Court ruling could fundamentally strengthen presidential influence over monetary policy.Citation
Richardson, Gary, and David W. Wilcox. 2025. "How Congress Designed the Federal Reserve to Be Independent of Presidential Control." Journal of Economic Perspectives 39 (3): 221–38. DOI: 10.1257/jep.20251447Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- G28 Financial Institutions and Services: Government Policy and Regulation
- N12 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
- N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-
- N42 Economic History: Government, War, Law, International Relations, and Regulation: U.S.; Canada: 1913-