So basically a Fed governor, who now answers to no one, objects to the Congress knowing exactly what they are doing?
There is already political pressure on the Fed. To imply otherwise is to insult our intelligence. The Fed has the power to try to help pols get reelected, as Bernanke did with obama, or to hurt them, as Greenspan did with Bush 41. When they assume such a grand role in our lives, they are naive not to expect more oversight to go with it.
To the best of my knowledge, Beltway, the way it works is that the U.S. President appoints the Board of Governors and selects one person to be Chair and another to be Vicechair. He then submits his nominations to the Senate who are charged in the Constitution with either confirming or rejecting the Presidents nominations. So it would seem that Jerome Powell would answer directly to the President who in turn answers to the American people every four years.
However this is only what it might seem like. In reality, there is statutory law, I believe it was added as part of the 1935 banking act, that protects Powell from being dismissed for policy opinions. He is appointed for four years. So he will only have to answer to the President and the Senate every four years. This is an arrangement similar to our Presidents having only to answer directly to us every four years! It seems to me that, in a most practical sense, you are correct: Powell essentially answers to no one except himself at night when he turns out the light.
I see this as a great strength of the Reserve System, protecting it from undue political interference. But I understand that there are actually those in Congress that would like to be able to dictate monetary policy to the Fed. That's what the deceivingly labeled "Audit the Fed " Bill is really about. The Fed is already very thoroughly and independently audited and the results of the audits are public. So knowing that, one must infer that there is much more to this Bill than meets the eye. Frankly the very idea of even the most knowledgeable of our congressmen or senators, let alone any of the country bumpkins, dictating monetary policy strikes unremitting terror into my feeble heart. I feel chest pains coming on just writing this!! Yikes!!!
Let me point out something that may be missed by a lot of Fed detractors who still maintain the fiction that the Fed is largely a for profit private sector venture. Prior to 1935 the Regional Bank Presidents had significantly more power in the Reserve system than they do today. In fact they had more say in Fed operation than the Board in Washington. The 1935 act reversed that power structure, making the Regional Bank Presidents much less powerful and consolidating ultimate decision making with the Board of Governors in Washington and the powerful FOMC. I think, today, after the 1935 act was passed, it is fair to say that the Federal reserve is very much an independent Federal agency with active participation and feedback of "private sector", shareholder owned Banks that have chosen to be a part of the Federal Reserve System (not Private banks answering only to a fat guy with a cigar, as in a popular You Tube Video!
) .
I certainly can't disagree with you, however, when you point out that there must be at least some political pressure on Fed governors, but I would think that mostly will be felt by the Board Chair. Although he or she is protected by statutory law from being fired for policy decisions, nevertheless as long as we have a human in that role they are going to feel political pressures. It will be a measure of their character to what extent they can put this pressure and their personal political proclivities aside. Every four years they have to be confirmed by the Senate so I suppose we could say that at least every four years they must answer to the President and the U.S. Senate. I should think that will be enough to keep them from becoming overtly political.
This is excellent and very clear:
http://www.federalreserve.gov/pubs/frseries/frseri.htm
