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An Overexposed Fed Makes the Chairman's Job Tougher

An Overexposed Fed Makes the Chairman's Job Tougher
Photograph by Brendan Smialowski/Bloomberg

Can the Federal Reserve regain its dignity? The summer-long sniping over the selection of a new chairman feels like bad reality television, with Janet Yellen anonymously accused of lacking gravitas and Lawrence Summers pronounced by one senator as unfit to mow his yard. Last year a bill to audit the Fed passed the Republican-led House 327-98 despite warnings from Chairman Ben Bernanke that the auditing of monetary policy decisions could produce a “nightmare scenario” of political interference.

All this is going to make the next Federal Reserve chairman’s job harder. Although the central bank is a creature of Congress, it has long cultivated a reputation for technocratic independence that helps it carry out essential but unpopular missions such as raising interest rates and bailing out banks. As if its normal work weren’t tough enough, now the Fed also has to try to restore its above-it-all image. If the Fed comes to be seen as a politically compromised institution, perception could become reality, warns Tim Duy, a University of Oregon economist who blogs about the central bank. “There is always the possibility that Congress and a like-minded president could rewrite the Federal Reserve Act to reduce monetary independence,” Duy says.