The Institutions of Federal Reserve Independence

The Federal Reserve System has come to occupy center stage in the formulation and implementation of national and global economic policy. And yet, the mechanisms through which the Fed creates that policy are assumed but rarely analyzed. These assumptions--of scholars, central bankers, and other policy-makers--are that the Fed's independent authority to make policy is created by law: specifically, the Federal Reserve Act with its creation of removability protection for actors within the Fed, long tenures for Fed Governors, and budgetary autonomy from Congress. This article analyzes these assumptions about law and argues that nothing about them is as it seems. Removability protection does not exist for the Fed Chair, but exists in unconstitutional form for the Reserve Bank presidents; the fourteen-year terms of the Governors are never served, giving every President since FDR twice the appointments the Federal Reserve Act anticipated; and the budgetary independence designed in 1913 bears little relationship to the budgetary independence of 2015. The article thus challenges the prevailing accounts of agency independence in administrative law and central bank independence in economics and political science, both of which focus on statutory mechanisms of creating Fed independence. It argues, instead, that the life of the Act--how its statutory terms are interpreted, how the legal and economic contexts change with the times, and how individual personalities influence policy-making--is more important to understanding Fed independence than the birth of the Act, the language passed by Congress. Fed independence is not simply a creature of statute, but an ecosystem of formal and informal institutional arrangements, within and beyond the control of the ac-tors and organizations most interested in controlling Fed policy.