Myopic Monetary Policy and Presidential Power: Why Rules Matter

This article examines the relationship between Fed policy and presidential power in a fiat money regime in which Congress has delegated significant power and discretion to the Fed. By making the Fed responsible, but not accountable, for achieving full employment and price stability, Congress can shift blame to the Fed when it fails to meet those objectives. As the Fed reviews its strategy and communications this year, it should not forget two important points: (1) independence is necessary for the Fed to do its stabilization job well, free of presidential meddling; and (2) specific monetary rules are an absolutely necessary condition to assure achievement of such independence. Ultimately, the Fed must be bound by a constitution that protects the value of money and safeguards individual freedom under a rule of law. The current monetary regime is far from that ideal.