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Congress and the Federal Reserve

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  • GREGORY D. HESS
  • CAMERON A. SHELTON

Abstract

We examine legislative activity to determine when Congress threatens the Fed and whether this pressure affects monetary policy. By the late‐1980s Congress shifted from threatening when unemployment was high to threatening when inflation was high. We use the Romer and Romer monetary shocks to isolate changes in the federal funds rate that cannot be explained by economic conditions and ask whether these shocks respond to pressure. In the 1970s, the Fed responded to bills credibly threatening Fed powers by lowering the federal funds target below that prescribed by current and forecast economic conditions. However, this accommodation ceased in the mid‐1980s.

Suggested Citation

  • Gregory D. Hess & Cameron A. Shelton, 2016. "Congress and the Federal Reserve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(4), pages 603-633, June.
    • Handle: RePEc:wly:jmoncb:v:48:y:2016:i:4:p:603-633
    DOI: 10.1111/jmcb.12312
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    2. Carl E. Walsh, 2022. "Peter J. Boettke, Alexander William Salter, and Daniel J. Smith: Money and the rule of law: generality and predictability in monetary institutions," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 57(2), pages 78-80, April.
    3. Dodge Cahan & Luisa Doerr & Niklas Potrafke, 2019. "Government ideology and monetary policy in OECD countries," Public Choice, Springer, vol. 181(3), pages 215-238, December.
    4. Jac C. Heckelman & Bonnie Wilson, 2021. "Targeting inflation targeting: the influence of interest groups," Public Choice, Springer, vol. 189(3), pages 533-554, December.
    5. Jordan, Jerry L. & Luther, William J., 2022. "Central bank independence and the Federal Reserve's new operating regime," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 510-515.
    6. Benjamín García & Arsenios Skaperdas, 2024. "Central Bank Independence at Low Interest Rates," Working Papers Central Bank of Chile 1003, Central Bank of Chile.
    7. Niklas Potrafke, 2017. "Government Ideology and Economic Policy-Making in the United States," CESifo Working Paper Series 6444, CESifo.
    8. Alexander W. Salter & William J. Luther, 2019. "Adaptation and central banking," Public Choice, Springer, vol. 180(3), pages 243-256, September.

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