The Federal Reserve System was created by statute in 1913, but the independence of its monetary policy from congressional or presidential influence is not codified by law — and it wasn’t always inviolable. In recent years, so-called reforms have been proposed to subject Fed monetary policy to congressional review, but its independence has so far been preserved.
For good reason: An independent Federal Reserve led by governors who are committed to pursuing its dual mandate of price stability and full employment, as well as effective regulation — and who make decisions based on facts and analysis — is critically important to our economy, the well-being of the people and the market credibility of Fed policy making.
But that independence is about to be severely tested. Daniel K. Tarullo stepped down from the Federal Reserve Board last week, adding to the board’s two existing vacancies. Instead of remaining as governors, Chairwoman Janet Yellen and Stanley Fischer, the vice chairman, could step down when their terms expire next year. President Trump has already said that he will not reappoint Ms. Yellen as chairwoman because she’s not a Republican.
