Janet Yellen and the Ongoing Myth of Fed Independence

Janet Yellen and the Ongoing Myth of Fed Independence

On Thursday, Federal Reserve Vice Chair Janet Yellen faced a panel of U.S. senators, a sight that might become more familiar to her once she takes the helm of the Fed as Chairwoman. And, admittedly, it would be nice to see that someone with solid experience and academic rigor take the office. 

However, Yellen's impressive resume aside, it is still worrisome that an unelected official is granted powers that rival those held by many world leaders. And what's more, the lack of a solid "checks and balances" system within the Fed threatens the thing it cherishes most: its independence. 

Recently, former Fed official Andrew Huszar publicly apologized in an article for the Wall Street Journal for his pivotal role in the Fed's "Quantitative Easing" program. He characterized the program as "the greatest backdoor Wall Street bailout of all time," and "the largest financial-markets intervention by any government in world history."

So now, thanks to Huszar and his colleagues, each and every month the Fed buys $85 billion in bonds. This has added up to $4 trillion over the past five years!

And who has benefited? U.S. banks' collective stock prices have tripled since March 2009, whereas unemployment numbers remain stubbornly high, especially after adjusting for those people not looking for work anymore. 

It's now clear that the Fed has only propped up Wall Street at the expense of the U.S. taxpayer. 

Yet the Fed still prides itself in its independent thinking and being above the concerns of politics, but is it above the influence of Wall Street? In a word: No. 

Huszar left the Fed because of what he saw as an inability to think independently from Wall Street. He states that the obsession of Fed officials now seems "to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers."

Former Fed Chairman Alan Greenspan once said that the Fed's lack of accountability is a small price to pay to avoid "putting the conduct of monetary policy under the close influence of politicians subject to short-term election cycle pressure." But what about the short-term pressure of quarterly-earnings reports from brokers and bankers? 

It is one thing for private industry and markets to be independent and free from the whims of short-sighted politicians. But the Fed is ultimately a government agency, and to say that government should be "independent of politics" conveys very different implications. For government, unlike private industry, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature. 

So, in a free society, why have we given up such extensive powers and handed them to a small group of unelected officials, even if they may be the best people for the job? 

Yellen may indeed be the right fit. However, the Fed's QE program, which Yellen proposes to continue indefinitely, has supported the system of "too big to fail" that plunged the U.S. economy into recession in 2008. What's more, unelected officials like Yellen are able to engorge the bailout package for Wall Street at the expense of the average American. 

As hopefully the public will soon discover, the Fed, far from being the indispensable solution to the economic woes of today, is in fact supporting the cause of the problem: government-backed banks.

Ultimately, the Fed's independence is not real independence at all. They just choose to whom they will be accountable, and it's not the U.S. taxpayer.  

How likely are you to make Mic your go-to news source?

Roger Pattison

Roger Pattison is currently pursuing a Master's degree in economics from George Mason University and working in non-profit fundraising for a liberty-advancing organization. I write on topics related to science, trade, immigration, emergent order, and informal institutions. All opinions written are my own and do not represent the views of my employer or George Mason University.

MORE FROM

Angela Merkel sharply criticizes Donald Trump on climate change without ever mentioning his name

"Whoever thinks that the problems of this world can be solved by protectionism and isolation lives under a huge misconception," Merkel said.

Top Pope aide charged with sexual assault vows to fight his "relentless character assassination"

Pell is the highest-ranking Catholic Church official to be ensnared in the church's sexual abuse scandal.

'Hot Mic' podcast: Sterling family lawsuit, Low approval for GOP health care, Trump hotel sued

The important stories to get you caught up for Thursday.

CNN's Van Jones allegedly says the Trump Russia stories are "a big nothing burger"

He's the second CNN insider this week to apparently denounce the network's Russia coverage.

Conservative columnist Bret Stephens joins MSNBC

Stephens will remain a columnist at The New York Times.

Department of Homeland Security announces new airline security rules

The new measures could help end the electronics ban.

Angela Merkel sharply criticizes Donald Trump on climate change without ever mentioning his name

"Whoever thinks that the problems of this world can be solved by protectionism and isolation lives under a huge misconception," Merkel said.

Top Pope aide charged with sexual assault vows to fight his "relentless character assassination"

Pell is the highest-ranking Catholic Church official to be ensnared in the church's sexual abuse scandal.

'Hot Mic' podcast: Sterling family lawsuit, Low approval for GOP health care, Trump hotel sued

The important stories to get you caught up for Thursday.

CNN's Van Jones allegedly says the Trump Russia stories are "a big nothing burger"

He's the second CNN insider this week to apparently denounce the network's Russia coverage.

Conservative columnist Bret Stephens joins MSNBC

Stephens will remain a columnist at The New York Times.

Department of Homeland Security announces new airline security rules

The new measures could help end the electronics ban.