Is the Federal Reserve accountable to anyone?
Yes, the Federal Reserve is accountable to the public and the U.S. Congress. The Fed believes transparency is a fundamental principle of central banking that supports accountability.
In the area of monetary policy, twice a year, the Federal Reserve submits an extensive report--the Monetary Policy Report--on recent economic developments and its plans for monetary policy. In addition, the Chair and other Federal Reserve officials often testify before the Congress.
The Federal Reserve is also transparent and accountable in its supervision of banks, operations of the payment system, and in its other functions as well. The Board of Governors prepares an annual report summarizing activities of the Board and all Reserve Banks; the annual report is delivered to the Congress.
To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent, outside auditor and published to its website. In addition, the Government Accountability Office, as well as the Board's Office of Inspector General, frequently audit many Federal Reserve activities. Weekly, the Board of Governors publishes the Federal Reserve's balance sheet. During the recent financial crisis, the Federal Reserve provided information about its lending programs on its public website and in a special monthly report to the Congress. The Board also regularly reports the results of supervisory stress tests of large banks.
To further clear communication and foster transparency and accountability in monetary policy, the Federal Open Market Committee (FOMC)--the body of the Federal Reserve System that sets national monetary policy--publishes a statement immediately following each of its eight annual FOMC meetings that describes the Committee's views regarding the economic outlook and provides a rationale for its policy decision. Full minutes for each meeting are published three weeks after each FOMC meeting. Full verbatim transcripts of the FOMC meetings are made available with a five-year lag. Further, the Federal Reserve Chair holds a press conferences after each FOMC meeting to discuss the monetary policy outlook.
International experience shows that monetary policy tends to be more effective in supporting stable prices and strong employment when it is shielded from short-term political influence, which is one reason the Congress has given the Federal Reserve considerable operational independence to set policy. At the same time, in a democratic society it is appropriate that operational independence is paired with central bank accountability to the public and its elected representatives. Clear communications about the goals and strategy of monetary policy are also essential for enhancing the effectiveness of systematic monetary policy because when the public and investors understand the goals of monetary policy, inflation expectations are more likely to remain well anchored.