by Joseph T. Salerno
During the period 1980s and 1990s, the desirability of the “independence from politics” of central banks became almost an article of faith among mainstream macroeconomists and those operating in financial markets. This development was driven by two factors: academic research on central banking; and the personality cults that grew up around the two Fed Chairmen during this period, Paul Volcker and Alan Greenspan.
In the decade leading up to the financial crisis, the intellectual climate was such that anyone suggesting that the Fed have its independence curtailed or even abrogated by Congress would have been considered beyond the pale of rational, let alone scholarly, discussion. However, as the painful and protracted recovery from the Great Recession has dragged on, the Fed’s independence of “politics,” i.e., of legislative oversight and constraint, has begun to be challenged even by economists and financial pundits.