Question

The United States Federal Reserve controls monetary and the credit conditions in the country. The authority for conducting monetary policy is given only by the Fed: out nation’s central bank. The members of the Federal Reserve Board are not elected by anyone, but rather are appointed. While the president and the members stand for re-election, no provision exists for Fed members. This has made the agency controversial at times.

The Fed is believed to have arguably far more power over controlling the economy than the president, yet its members do not stand accountable to the public for its actions.

Is this a wise arrangement in a democratic society? Or are there reasons why these members perhaps should not be elected by the voters at large?

Answer 1

Is this a wise arrangement in a democratic society? This is a subjective question and different people have different opinions (that's why there had been controversies in the past). I think, the answer is a "yes". Even though, Fed has far greater power than president in controlling the economy, it still should not be "directly" elected by the people. The reason is - Fed's job is to control and stabilize the economy, so it should be an independent body. Once its members would be elected by people, it would become a political entity. So it may cater some of public's demand (e.g. slashing down the interest rates, even when it is not good for economy) which may be bad for the economy.

And even though its an independent body, its not entirely unaccountable to public and government. As such, congress can fire fed chairman by parliamentry process if his actions are inappropriate for the economy. Congress is free to rescind the authority invested in the Federal Reserve officers as independent makers of monetary policy at will by merely passing a bill to do so. All of the much vaunted powers of the Federal Reserve to conduct monetary policy are merely a delegation by Congress of the authority to do so, with the ultimate responsibility still residing in Congress, all of whom are elected directly by the public.

As can be clear from the fed's statement in this matter - "The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long-run goals and do not become subject to political pressures that could lead to undesirable outcomes. So, members of the Board of Governors are appointed for staggered 14-year terms and the Board chair is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board.

The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the Federal Reserve System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury."