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September 21, 2009

The Fed under fire

The Federal Reserve has been by many measures the main governmental player in fighting the recession. A recent poll of economists found high praise for the actions by the Fed during the economic crisis. But at the same time, there is legislation circulating in Congress that would put new oversight on the Fed. So it seems like we have a love-hate relationship with this very important institution. How do you explain that?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I think while many people, especially professional economists, do credit the Fed, on the other hand, the Fed over the last couple of years, has really redefined itself. It has wielded huge power. It has gone into places in the economy it has never gone before. And while again, many would say, well, that's been good because it has, perhaps, saved us from something worse in the economy, now folks are sitting back and saying, gee, do we really want that institution to have that much power? So I think that's the reason for the debate. Now, people should remember that the Fed is not an independent institution out there just operating on its own. It does have oversight from Congress. You often will see Fed Chairman Bernanke and before him Fed Chairman Greenspan frequently going up to Congress and testifying. In fact, their charter comes from Congress. The managers, if you will, called governors of the Fed are presidentially appointed and also confirmed by the Senate, so it isn't as if this is an independent entity operating out there. But I think one piece of the debate right now is whether the Congress should have more direct oversight on the operations, the day-to-day operations, of the Federal Reserve. Some say that is called for given how things have changed in the economy over the last couple of years. Those inside the Fed are saying that really wouldn't work because the Fed does need to move very quickly, and it can't take time to have a committee review its actions."

Posted by Dave at September 21, 2009 08:00 AM