The current chairperson of the FED is Janet Yelling and she

\"The current chairperson of the FED is Janet Yelling and she oversees an entity that is strongly influenced by politics and politicians.\" Do you agree? Why or why not? Be specific and limit your response to one paragraph..

Solution

I agree. On paper the Federal Reserve System appears to be relatively autonomous, since it receives its operating revenues from its constituent banks, not from congressional appropriations, and since its governors, once in office, cannot be dismissed by the president. The governors\' long terms mean that an occupant of the White House cannot expect to pick a majority of the governors. The Fed, moreover, conducts its meetings in private and is under no legal obligation to report to the executive branch. Given these conditions, one might think it could escape public accountability altogether. Some political economists detect a political monetary cycle (PMC), during which the Fed relaxes monetary policy in the months before a presidential or congressional election, hoping that business will pick up and thus make the incumbent president\'s party shine in the eyes of the electorate. As soon as the campaign ends, however, it tightens the screws again to hold down inflation. According to this interpretation, the Fed rhythmically starts and stops the economy for partisan purposes. If true, the existence of a PMC would suggest that the Fed is at least indirectly accountable to the people, as democratic theorists hope. Yet the Fed is also the creation of Congress, which takes a strong interest in its work and can always amend its charter. Furthermore, as a practical matter, the Fed\'s officers have to interact daily with senior executives in the Treasury Department, the OMB, and other agencies. The chair frequently testifies before legislative committees and regularly consults with the president\'s staff. All members of the board of governors realize the value of maintaining support at both ends of Pennsylvania Avenue because they know determined political opposition can undercut their policies. In short, the Federal Reserve\'s statutory independence does not immunize it from political pressures. The ill-defined boundaries between the Fed and the rest of the Washington establishment leads to endless debates about its autonomy. Some observers emphasize the Fed\'s political nature, arguing that it pays close attention to the desires of the White House. Presidents normally want the money supply to flow freely enough to keep the economy booming and will pressure the Fed to achieve that result. Members of the board do not want to antagonize the chief executive and, if pressed, often cave in.