A Well-Designed Institution

Independence + Accountability

Over the years, there have been changes in the Fed's structure to improve its independence, credibility, accountability and transparency. These changes have led to a better institutional design that makes U.S. policy credible and based on sound economic reasoning, as opposed to politics. In times of financial and economic crisis, there is a tendency to reexamine the structure of the Federal Reserve System. To the uninformed observer, the Fed's structure is in many ways mind-boggling. In particular, it seems counterintuitive that, in a democracy, the central bank should have independence from Congress. Yet, this independence is the result of Congress trying to avoid making monetary policy mistakes for political gain. Of course, accountability of public policymakers is a fundamental principle in a democracy. It is the tension between independence and accountability that led to the design of the Federal Reserve, and it has been an ever-present force in U.S. monetary policy for the last century.

In the end, the Federal Reserve System is a well-designed institution, created by Congress, that keeps the government from relying on the printing press to finance public spending. It is independent, credible, accountable and transparent. It is a nearly 100-year-old success story that has served the nation well.