The Federal Reserve's Coalition in Congress

Abstract

The Federal Reserve’s coalition in Congress changes over time with the mandate the Federal Reserve (Fed) is pursuing. When the Fed is fighting inflation, the Right supports it while the Left attacks it. When the Fed’s focus shifts to reviving employment, the coalitions reverse and the Left supports the Fed while the Right attacks it. I analyze a new dataset of all congressional legislative proposals since 1973 that would reduce the Fed’s political independence from Congress. I find that cosponsors of these “anti-Fed” proposals move from left to right as the Fed’s priority shifts from price stability to full employment. I also examine roll-call voting on an anti-Fed proposal that was approved in the House in 2012. Voting patterns on this “Audit the Fed” proposal reveal that the Fed’s congressional coalition is now solidly left-wing, with attacks emanating from the Right. This reflects a combination of macroeconomic conditions – reducing unemployment has been the Fed’s priority during the Great Recession – and the Right’s antipathy to the Fed’s support of foreign central banks during the financial crisis.