The Drafters of the Federal Reserve Act and Subsequent Legislation

question 33

Essay

The drafters of the Federal Reserve Act and subsequent legislation dealing with the nation's central bank intended that the Fed be able to take the long view and do what is best for the country without being influenced by short-term political considerations. For example, the Fed is not dependent on Congress for its budget. Instead of going through the congressional appropriation process, the Fed's budget comes from its earnings on its open market operations. Congress cannot threaten the Fed with the loss of funds if the Fed does not take the action Congress deems appropriate. The chapter lists several other components of the act that were intended to preserve the Fed's independence. Look through the chapter for three factors regarding the organization of the Federal Reserve and explain how these provisions contribute to the Fed's independence.