The Federal Reserve System has come to occupy center stage in the formulation and implementation of national and global economic policy. And yet, the mechanisms through which the Fed creates that policy are rarely analyzed. Scholars, central bankers, and other policymakers assume that the Fed’s independent authority to make policy is created by law–specifically, the Federal Reserve Act, which created removability protection for actors within the Fed, long tenures for Fed Governors, and budgetary autonomy from Congress.
This Article analyzes these assumptions about law and argues that nothing about Fed independence is as it seems. Removability protection does not exist for the Fed Chair, but it exists in unconstitutional form for the Reserve Bank presidents. Governors never serve their full fourteen-year terms, giving every President since FDR twice the appointments that the Federal Reserve Act anticipated. And the budgetary independence designed in 1913 bears little relation to the budgetary independence of 2015. This Article thus challenges the prevailing accounts of agency independence in administrative law and central bank independence literature, both of which focus on law as the basis of Fed independence. It argues, instead, that the life of the Act–how its terms are interpreted, how its legal and economic contexts change, and how politics and individual personalities influence policymaking–is more important to understanding Fed independence than the birth of the Act, the language passed by Congress. The institutions of Federal Reserve independence include statute, but not only the statute. Law, conventions, politics, and personalities all shape the Fed’s unique policy-making space in ways that scholars, central bankers, and policy-makers have ignored.