How can the U.S. government influence the Federal Reserve?
The federal reserve is designed to be insulated from political interference when conducting monetary policy. Politicians are incentivized by election-cycles to prioritize short-term gains and ignore longer-term costs. Short term solutions can be very harmful to an economy. Like not raising interest rates as an economy is growing too quickly. Raising interest rates is always unpopular as is slowing the economy; but slowing the economy allows it to continue to grow longer. So in the long term it's the better option. The intent of this insulation is not to free the Federal Reserve to pursue whatever policy it prefers but to provide a credible commitment by the government to achieve its goals as defined by Congress, especially price stability/inflation targets which require the kind of fiscal discipline which is typically politically unpopular with the public.
To your point, independence has to be balanced with accountability. The problem is all accountability is an avenue which invites destructive pressures. As does the lack of accountability. The history of the Federal Reserve is defined by the government trying to both limit and expand it's authority over the Federal Reserve.
How is the Federal Reserve Accountable to the rest of governments.
- The Federal Reserve has specific, external economic mandates set by congress.
- price stability
- inflation index targets
- maximum sustainable employment
- The Congress
- holds formal semiannual testimonies with the Chairman of the Federal Reserve where all it's finances and policies are reviewed.
- reports it's finances to Congress quarterly.
- Each Federal Reserve Bank is audited every year by independent auditors.
The federal reserve doesn't spend U.S. tax dollars. The federal reserve makes money (both literally and figuratively), figuratively by charging bank fees on transfers and on interest from securities it acquires in the course of the Federal Reserve's open market operations.. The money made over and above it's expenses are given to the U.S. Treasury. Congress keeps a close eye on Federal Reserve expenses and funds on hand through these series of financial reports from both internal and external federal reserve resources.
- The Senate approves every seat on the Federal Reserve board. Including the Chairman and Vice Chairman seats of the Federal Reserve.
- Congress can pass legislation that directly requires a specific monetary policy action. (not desirable, but they've done it)
- specify particular qualifications for Board members
- can demand an accounting on policy by summoning the chairman, board members, and Reserve Bank presidents to impromptu hearings
- Congress can abolish or change the Federal Reserve
- The Federal Reserve Chairman meets multiple times a week with the Secretary of the Treasury, where policy is discussed.
- The Federal Reserve Chairman also serves on various and changing economic advisory boards for the President.
- The President has the authority to fire any board member on the Federal Reserve for cause.
- The President can also call for impromptu meetings with the Chairman or any of the other Federal Reserve board of governors.
- Reappointment process, the board of governors terms are only four years and can be reappointed for additional terms. Short and renewable terms facilitate accountability to the Executive and Senate which must approve these reappointments.
To the public:
- The minutes of federal reserve meetings are made public shortly after every assemble.