"6. Does Congress supervise Federal Reserve policymaking?
No. In practice the Federal Reserve is “independent” in its policy making. The Federal Reserve neither requires nor seeks the ap¬proval of any branch of Government for its policies. The System it¬self decides what ends its policies are aimed at and then takes what¬ever action it sees fit to reach those ends.
"7. What problems are raised by an 'independent' Federal Reserve?
There are two major problems. One is the problem of political responsibility for the country’s economic policies. The other is the problem of final control over the Government’s actions in the economic sphere.
"8. What is the problem of political responsibility?
Since the Federal Reserve is independent it is not accountable to anyone for the economic policies it chooses to pursue. But this runs counter to normally accepted democratic principles. The President and Congress are responsible to the people on election – day for their past economic decisions. But the Federal Reserve is responsible neither to the people directly nor indirectly through the people's elected representatives. Yet the Federal Reserve exercises great power in controlling the money-creating activities of the commercial banks.
Because with an 'independent' Federal Reserve, Congress and the President can be moving in one direction while the Federal Reserve is moving in the other. ‘The result is sometimes no policy at all. At other times, it leads to the Federal Reserve’s neutralising the President’s economic policies. This very possibility caused President Johnson to request the Federal Reserve in his 1964 Annual Economic Report to Congress not to nullify his efforts to reduce unemployment and raise incomes. Should the President have to ask any Government agency to go along with his policy as approved by Congress? Obviously not.
"10.Who really directs Federal Reserve operations?
Day-to-day operations in each of the 12 regional Federal Reserve banks are supervised by nine directors - six of them selected directly by privately owned commercial banks. The most important monetary decisions for the system as a whole are made by the Open Market Committee, which is composed of 12 members.
"11. Do private bank interests influence Federal Reserve policy?
Yes. Of the 12 members of the Open Market Committee—the Com¬mittee which actually controls credit policy—5 are presidents of regional banks. These presidents are elected by the individual regional banks’ nine-man board of directors with its preponderance of private commercial bank representatives. Further, all 12 of the regional bank presidents participate in the Open Market Committee’s discussions, though only 5 can vote. The 'discussion' Open Market Committee, then, has 19 members—12 regional bank presidents and the 7 members of the Federal Reserve Board
Yes, indeed. The money supply helps determine the general level of interest rates paid for the use of money, employment, prices, and economic growth. Many economists believe the money supply is the most important determinant of these variables.
"13. Who determines the money supply?
The Federal Open Market Committee of the Federal Reserve System.
"156. What is the main problem of the Federal Reserve System today?
In a word, Federal Reserve independence. Congress and the People are faced with the issue: how can we bring money management under genuine public control in order to co-ordinate monetary with other public policies? The original intent of the Federal Reserve Act was to insure such control : that intent is still valid. Our Government must squarely face the challenge of recapturing the tiller of its money system.
"165. Who favors Federal Reserve independence?
The private banks who control the System, together with some allies—notably, Wall Street newspapers and other members of the financial community."