Myopic Monetary Policy and Presidential Power: Why Rules Matter

In the absence of a monetary rule, a central bank is vulnerable to politicization. In the case of the United States, Congress delegated monetary authority to the Federal Reserve in 1913 and has increased the scope of that authority over time, especially following crises. However, Congress has never enacted an explicit rule to guide Fed policy, and it has used the Fed as a scapegoat when things go awry. By law, the Federal Reserve has a triple mandate to “promote effectively the goals of maximum employment, stable prices, and