Congressional Attention - Buisness Management - Lecture Slides, Slides of Business Administration

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Today’s questions

• Why is today’s Fed so unpopular?
• Should the Fed respond to such criticism? If so, why and how?
• What forces drive Congress’s response to criticism of the Fed?

Congressional attention (1)

Congressional attention to the Fed

(By party, 1947-2008)

What forces shape Congress’s

response to criticism of the Fed?

• Partisan position-taking
  • GOP today favor stripping the Fed of its dual mandate, limiting the Fed’s discretion
  • Democrats today favor protecting Fed discretion, centralizing power in the Board

What forces shape Congress’s

response to criticism of the Fed?

• Divisions within the parties
  • Both parties have Wall Street wings that are protective of the Fed
  • Both parties have Main Street wings that are protective of the reserve banks

End the Fed? Not so fast

• Congress rarely speaks with a single or

fixed voice about the Fed

• Only pays attention when the economy sours
• Prefers to blame (not reform) the Fed
• Partisan disagreements complicate reform
• Bipartisan coalitions at times protect the Fed
• Congressional rules pose steep barrier to

reform

The Fed’s future

• Uphill battle for Fed to improve its reputation
  • Needs the economy to recover
  • Can directly influence only one side of its dual mandate from Congress
• Increased transparency is a double-edged sword - May keep Congress at bay, but reveals internal Fed dissent - Will the Fed one day rue its efforts to dispel its mystique?