Fed Chair Takes the Hot Seat, Accepts Responsibility. What About Congress?

On March 6, the people who keep putting our government under shutdown threats had the chance to question the man who oversaw a 40% money supply expansion in just months. Yes, Federal Reserve Chairman Jerome Powell testified before Congress last week. With one side wanting him to declare victory and the other side pushing him to second-guess the current administration, Powell would have looked like a sacrificial lamb in election-year politics if he hadn’t already been found guilty of causing inflation by the public. 

In Powell’s defense, inflation was not driven entirely by monetary policy. There was also the pandemic-induced demand and expansionary fiscal policy to fuel that demand. To his credit, Powell and the Fed have assumed responsibility and made corrective actions. Congress, on the other hand, has not. Fiscal policy is nowhere near reversing course, and no elected official has admitted they were wrong while Powell and Fed officials have. 

Many question the Fed’s role and even call it a “secretive” institution, accusing the Fed of not being accountable since its officials are not elected. Despite the lack of election stamp, the central bank is accountable to the public and Congress by law. Its independence, which some claim to be problematic, is what keeps monetary policy from throwing the economy into complete chaos. Members of Congress and the president are elected, and how do you like the government shutdown threats so far? 

Monetary policy is a highly technical field and, unlike fiscal policy, can change course in just a matter of one meeting. If it was subject to political pressure, such speed could cause severe economic damage, particularly during election years. When former President Donald Trump or President Joe Biden run into a social media war, they get ridiculed by their opponents. If Powell tweeted one wrong word, markets could crash. Being highly guarded in public appearance for a central banker is a feature, not a bug. 

The Fed’s role might have expanded more than it should have—that’s an argument for another day—but not being elected is what allows the central bank to not worry about what show to put on for an upcoming election and, instead, focus on the right course of action for our economic well-being. They still make mistakes sometimes—and then Congress can grill them.