Independence, Accountability, and Transparency: Three Keywords for the Fed

Monetary policymakers always face tradeoffs, and today provides no exception. By holding interest rates lower, for longer, Federal Reserve officials might temporarily strengthen the economy, but only at the cost of risking higher inflation down the road. To help manage these tradeoffs between short-run gains and long-run costs, the Federal Reserve, like many other central banks, has been granted considerable independence. How can an independent Federal Reserve remain accountable to the American people? To answer this question, it suffices to note that the U.S. Congress has always specified the overriding goals for monetary policy.