Legislative Branch Pressures on Monetary Policy: 1914–1994

Abstract

The history of Congressional involvement with monetary policy in this century has two distinct aspects. The first is Congress’ concern with the structure of the central bank, particularly whether it would be controlled by political appointees or by representatives of the financial sector, specifically the banking industry. The second aspect is the legislative branch’s concern with the management of monetary policy. While there is overlap between the two concerns,1 Congressional focus on each is concentrated in two distinct time periods. Involvement with private sector versus political control occupied the Congressional consciousness for the first third of the century, interrupted by Congressional dabblings in monetary policy management in 1921, 1926, 1928 and 1933. The control issue was resolved in favor of political appointees by the Banking Act of 1935. Since 1935, legislation has perennially but unsuccessfully been brought before Congress which would increase the power of executive branch appointees to the Federal Reserve Board. For the second half of the century, Congressional concern shifted to the management of monetary policy. It came into prominence with the emancipation of Federal Reserve monetary policy from Treasury control in the Accord of 1951, an event in which Congress played a pivotal role. It was the centerpiece of reforms in the mid 1970s which required biannual Congressional oversight hearings on monetary policy. The management of monetary policy resurfaced in 1994 when Congressional pressure resulted in increased Federal Reserve accountability (less secrecy) regarding its policy intentions.