Over the years, calls to reform the Fed have come and gone. We have seen periods when the Fed has been praised and vilified, sometimes simultaneously. In the best of times, central banks go about their business of stabilizing the value of the nation’s currency with little attention from the broader public or from politicians. In recent years, however, the Fed has become a favorite whipping boy in some quarters. Indeed, whether it comes from the left or the right, criticism and the calls for reform have grown.
A number of proposals have been put forward to reform the Fed. There are disturbing trends in how Congress and others seem to envision the appropriate role for our central bank. In particular, Congress has been using the Fed to explicitly avoid tough fiscal choices. This undermines the independence of the Fed with potentially dangerous repercussions.