The Fed’s Independence Is Under Attack Despite an Economic Rebound

Federal Reserve Chair Janet Yellen isn’t feeling a lot of love. She’s under attack from both conservative Republicans and liberal Democrats. She’s fending off a House of Representatives subpoena regarding a leak of economic data. And Americans in a Gallup Poll last November ranked the Fed second-to-last among 13 federal agencies for performance, just ahead of the Department of Veterans Affairs. Most recently, House Financial Services Chairman Jeb Hensarling told Yellen during her semiannual testimony on monetary policy on July 15 that the Fed’s guidance has been “somewhat amorphous, opaque, and improvisational.”

What’s surprising is that animosity toward the Fed is so strong now, considering that the unemployment rate is down to 5.3 percent, consumer prices are up just 0.1 percent over the past year, and the Fed is winding down the stimulus it began during the financial crisis. Much of the recent criticism is focused on its role as a bank regulator, not as a steward of the economy. Some is partisan. Either way, the dissatisfaction feeds into a general mistrust that could gradually undermine the Fed’s independence in setting monetary policy—i.e., raising and lowering interest rates to modulate growth. “The rancor on this is a huge issue,” says Columbia University economist Frederic Mishkin, a former member of the Fed’s Board of Governors.