In a recent Brookings Cafeteria Podcast, Senior Fellow Sarah Binder spoke about the relationship between Congress and the Federal Reserve, where resides a set of issues that she called among “the most fundamental questions of democracy.”
And so as Ben Bernanke, who recently spoke at a Brookings event, finishes his term this week as Fed chair and Janet Yellen prepares to take over, and as Fed officials deliberate on yet another step in “tapering“—extracting the Fed from its bond-buying program that was designed to help stimulate the U.S. economy—Binder’s perspectives on Fed transparency, its responsiveness to political pressures, and the state of the “end the Fed” movement are relevant.
Binder called managing the exit from quantitative easing (aka “tapering”) “a challenge for the next chair,”
to maintain consensus about how to do it, to keep markets on board for what and when they want to do it, and to keep congressional criticism to some degree at bay. Because the more criticism there is of the Fed, the worse it is for their reputation, and thus their confidence in the Fed’s ability to do it correctly. And that’s a huge, huge challenge for the incoming chair of the Fed. As will the whole question about regulating the banks, too big to fail, and taking up the Fed’s role in the wake of Dodd-Frank to do what we call macroprudential supervision—thinking about the financial stability of the financial system generally, not just the individual banks. That’s not necessarily something the Fed has great experience with. And so that’s going to be a work in progress as well.
Listen to the podcast below to hear more. The conversation about Congress and the Fed begins at 10:20.