Question

Microeconomics essay question, please help.

Question: Should the Federal Reserve System be subject to Congressional oversight?

Answer 1

Many people are surprised to hear that part of the U.S. central bank operates independently of the government. The Federal Reserve (Fed)'s hybrid public and private system is highly controversial, especially in the wake of the 2007-2008 financial crisis.
The President (or anyone else in the Executive Branch) does not have to ratify the Federal Reserve's monetary decisions. The Fed does not receive funding from Congress, and the designated members of the Board of Governors serve terms of 14 years. Such words do not correspond with the terms of the presidency, resulting in further autonomy.

Nevertheless, Congress controls the Federal Reserve, which is committed at ensuring that it meets the economic goals of full jobs and stable prices. So Congress must be presented by the Fed Chair with a semi-annual report on monetary policy. The primary justification for an independent Federal Reserve is the need for short-term political pressure to weaken it. Without a degree of autonomy, elect-focused policymakers may pressure the Fed to adopt an overly restrictive monetary policy to reduce short-term unemployment. This could result in high inflation and a lack of long-term regulation of unemployment.

The allocation of a constitutional power to an independent government entity by Congress is unconstitutional. Congress has the power to coin money and control its value, according to the Constitution. In 1913, through the Federal Reserve Act of 1913, Congress transferred this authority to the Fed. Many contend, however, that a delegation like this is essentially unconstitutional. Fed autonomy critics also say that it is undemocratic to have an incompetent institution that sets monetary policy, unaccountable to the US public.