Don't End or Audit the Fed: Central Bank Independence in an Age of Austerity

102 Cornell Law Review (2016) The Federal Reserve (the Fed) is the central bank of the United States. Because of its power and importance in guiding the economy, the Fed's independence from direct political influence has made it a target of ideologically motivated attacks throughout its history, with an especially aggressive round of attacks coming in the wake of the 2008 financial crisis and ongoing today. We defend Fed independence. We point to the Fed's exemplary performance during and after the 2008 crisis, and we offer the example of a potential future crisis in which Congress falls to increase the debt ceiling to show how the Fed's independence makes it the only entity that can minimize the damage during crises (both market-driven and policy-induced). We further argue that the Fed's independence is justified to prevent self-dealing by politicians, even when no crisis is imminent. Although the classic justification for Fed independence focuses on the risk that political actors will keep interest rates lower than appropriate for the long-term health of the economy, we show that Fed independence addresses the risk of self-dealing and other pathologies even when, as now, political actors favor tighter monetary policy than appropriate for the long-term health of the economy.