“Former Board of Governors Chairman Paul Volcker Reportedly Once Said That the Federal Reserve Is Free to Pursue Any Policy It Desires, as Long as It Convinces Congress That Such a Policy Is Reasonable. What Does

The Fed makes a large amount of profit from its operations within the finance sector – an estimated 5% of the Fed’s revenue covers it’s operational costs. Because the Fed does not cost the governement anything (quite the opposite – any Fed profits in a year are turned over to the treasury), there is no financial pressure or threat to the Fed from the government.

Congress does, however, have the power to create, change or manipulate legislation to take hold of the Fed’s control. For example, the FED discloses as little as possible about it’s operations (the complete opposite of the european central bank, which must be completely transparent). Previously, the Fed chose not to release its targets for monetary policy and operational strategy, but Congress decided that these figures should be made public, and changed legislation to force the Fed to announce its targets. Had the Fed been truely independant, Congress would not have been able to manipulate legislation in such a way that is has a direct influence over the Fed.

One of the suggested reasons that the FED is secretive about its operations is that it can avoid conflict with politicians and congress if they do not know what the Feds intentions are. Another example of congress influencing the fed is the fact that the fed did not previously announce minutes of its Federal Open Market Committee, but congress changed legislation to make it release results of meetings.

Based on the examples, the Fed is not truely independant. True independence would come from the Fed being able to peruse any target and policy that it wanted, without having to consult congress. Moreover, congress would not be able to manipulate the legislation that is in place to get the results that it wants. There is arguement over whether or not true Federal Reserve independance is a good thing – perhaps it is best that congress has overall control over the fed as it can make mistakes – as documented during the great depression of the...